[Allan_L (Allan)]

I don't want to offend anyone, either.

FUTURES:
OK your growing wheat.
You are short of funds.
You know (hope) you will be richer when you can sell the crop.
But that is months away.

So you agree with a buyer to sell him a certain amount (not all) of your crop for a "good price" to be delivered at a date 6 months hence. The price incoporates the expected price at that time and a discount for the present value of that money now (interest rate) and an inticement.

All is good.
you get the money now for the crop.
The buyer has a guarantee of supply.
All is good.

Except if the Buyer is someone who does not really want x,000 bushells of wheat, then or ever. (Read : A Bank or other trader )

Then he has to find a REAL buyer.
Until he does, he is playing the risk that the price will move in his favour.

OR
He can make a SELL contract for the exact amount of wheat he has the previoius BUY contract for (and same period). Another Futre! But the two contracts offset. And he can take his profit (or loss) NOW. that is the margin. And the Futures Exchange monitors margins to make sure they do not get out of hand.

So futures are good for the real producer and the end purchaser.
But it is the middleman who speculates and takes the risk.

FINANCIAL FUTURES:
You want to buy a tractor. It comes from overseas. It costs $200,000US. It cannot be delivered until 6 months from now. At that time you will have to pay for it.
You dont want to risk exchange rate changes so to completely eliminate any risk, you buy a future contract for $200K US for 6 months hence.

So this future completely eliminates any exchange rate risk.

They are good in principle. But the trading (without REAL Delivery in mind) can get speculative and then you are gambling. This is where regulation may need stiffening up! Traders wanting a quick buck!
AND, not all Futures are through the Futures Exchange.

I don't really have a point. Just wanted to show that they can have a good purpose.
Maybe regulation would be improved if they should make it compulsory for ALL futures to be traded through the Futures Exchange ??
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