Futures Market And The Economy – How Are They Related

The futures market is based on auctions. In this market, participants (read traders) sell and buy contracts of commodities and futures that will be delivered on a future date. There are a lot of such markets in the US and elsewhere. The basic functioning premise of these markets is the assurance that the delivery of a commodity will happen on the date specified in the contract.

Before the digital and electronic age, trading in this market meant a lot of yelling over each other in what is known as a trading pit. Similar to what we see in the movies. However, these days all futures trades have been digitized.

How does it work?

The fundamental principle of a futures market is demand and supply. Since we all depend on a steady stream of supply and demand, the futures market has to exist for us. For instance, if one were to trade in a commodity like tea. If a tea garden sells tea leaves to at $5 per pound to a roaster who will dry the leaves into the tea used in dipping bags and loosely, and the roaster sells the finished product at $10 the goal is to make sure that the price remains fixed. However, if there is a difference in price (aka a rise or a fall, the difference is borne by the investor).

Futures and the economy

When trading in futures, traders often try and predict the prices and drive up the rates of commodities. These signals can be assessed and manipulated using a automated trading software like Inifnity app. There was a time when the futures market was solely functioning on the buying and selling of agricultural products. Now, the market also includes financial products like hedges.

Since the futures market is so interconnected with products that control the strength of an economy it is imperative that the futures market always go in a bullish trend. This means that it must always be on the uptake. While being bullish is the goal, it isn’t always possible. Futures markets are a key part of the economic system. And it is imperative that the market thrive so that the economy is also robust.

The economy works on supply and demand. For as long as there is adequate supply catering to demands, it is possible that trade and investments are also doing well. When all the factors that go into making a thriving economy function well enough, the economy also thrives and is strong and shows positive trends.