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0 pointsminhaz238y ago0 comments

Can you expand on that second paragraph?

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4 comments · 2 top-level

IncRnd8y ago· 2 in thread

> Can you expand on that second paragraph?

Futures stabilize the price of the underlying commodity.

The argument mostly boils down to that most rational actors will only tolerate a +/-N% change over the lifetime of a futures contracts

So the average future contract +/-N% (overall futures) roughly becomes the maximum volatility you can see out an asset over that duration. If it is exceeded people may stop trading futures, lowering the number of swaps, and by extensions trades of that asset. Providing a method to -let steam out- of a volatile system.

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There are many examples against this (housing crisis 2008). The main example for is Chicago future exchange in the 70’s and 80’s http://www.econlib.org/library/Enc/FuturesandOptionsMarkets....

IncRnd8y ago

From the very link you posted, "Because futures contracts offer assurance of future prices and availability of goods, they provide stability in an unstable business environment."

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totalZero8y ago

Futures trading allows better price discovery, and generally improves the market for the underlying by contributing liquidity, especially from speculators.

(This is true for most commodities, but I think it could potentially be false for BTC depending on the way hedging transactions are logged and computed.)

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