Futures Market Explained

– [Voiceover] A three-dollar
box of corn cereal stays at roughly the same price day-to-day and week-to-week. But corn prices can change daily. Sometimes by a few cents, sometimes by a lot more. Why does the cost of processed food generally stay quite stable, even though the crops that go into them have prices that fluctuate? It’s partly thanks to the futures market. The futures market allows
the people who sell and buy large quantities of corn to insulate you, a consumer, from those changes without going out of business themself. Let’s meet our corn producer, this farmer. Of course, she is always
looking to sell her corn at a high price. And on the other side, our corn user, this cereal company, is always looking to
buy corn at a low price. Now, the farmer has a
little bit of a problem, because her whole crop
gets harvested at once. Lots and lots of farmers will be harvesting at the same time, and the huge supply can
send the price falling. And even though that
price might be appealing to the company that
makes cereal from corn, it doesn’t want to purchase
all of its corn at once, because, among other reasons, it would have to pay to store it. (cash register rings) But it’s fortunate that
corn can be stored, because that means it
can be sold and bought throughout the year. And this is where the
futures market fits in. Buyers and sellers move bushels around in the market, though actual corn rarely changes hands. Instead of buying and selling corn, the farmer and cereal maker
buy and sell contracts. Now we are getting closer to
peace of mind for both sides, because a futures
contract provides a hedge against a change in the price. This way, neither side is stuck with only whatever the market price is when they want to buy or sell. These contracts can be made at any time, even before the farmer plants the corn. She’ll use the futures market to sell some of her anticipated crop on a certain day in the future. Of course, she’s not going to sell all of her corn on that contract. Just enough corn to reassure her that a low price at harvest won’t ruin her business. The contract provides that security. The cereal company uses the same market to buy bushels. Their contract protects
against a high price later. Contracts will gain or lose
money in the futures market. If the price goes high, the farmer loses money
on that futures contract. Because she’s stuck with it. But that’s okay, because now she can sell
the rest of her corn, what wasn’t in that contract, at the higher price that offsets her loss
in the futures market. If, at harvest time, the
price of corn is low, well, that’s exactly why she
entered the futures market. The low price means her
contract makes money. So that profit shields her from the sting of the low price she’ll get for the bushels she sells now. A corn cereal company doesn’t
like those higher prices, and that’s why they
have a futures contract. They make money on it and can use that profit to cover the higher price of the corn they now need to buy. The futures market serves
as a risk management tool. It doesn’t maximize profit, instead, it focuses on balance, and in this way it keeps your cereal from breaking your weekly shopping budget.

78 Replies to “Futures Market Explained”

  1. This was both really adorable and incredibly helpful for helping me understand Futures.
    I thought it was to maximize profit but I now understand that is a risk management tool for both parties

  2. Those looking for calls in NIFTY & BANKNIFTY options calls can join


  3. Digitex Future is UP 20X from its ICO price and moving crazy towards the 🎯 of 10-100X 🚀. Don't miss the golden chance once in a lifetime to make a fortune 💰. You still have chance to get on the 🚢 .Its a TOP 60 COIN in coinmarketcap. A cryptocurrency 💎

  4. I was gonna subscribe, but the female farmer is kinda felt like propaganda and stupid. I suggest to make the videos realistic, and free of any politics, if you wanna grow your channel.

  5. What a sexist video. Just say farmer – not "she". Let's have some gender equality or, better yet, neutrality.

  6. why there is a difference of 13 rupees in future contract of aluminium mini and aluminium in MCX of march contract in india

  7. funny to read comments criticizing the use of females in this video i didnt even notice..im just glad to learn about the futures market in 5 min.

  8. Great video, I have heard all the big oil producers have their own trading desk. Is it the same for farmers? or is it more uncommon


  10. Actually future market and option market is for risk management but now a days people haveinovated it to earn high profit

  11. Royal Red or Dwarf Papaya Seeds
    The royal red papaya is a dwarf papaya whose tree size varies between 1m and 1.5m from the ground. It gives fruit after 6 months, and the harvest begins in the 7th month and the harvest of the fruits is done for 22 months.
    It is a delicious fruit, become famous for all the benefits it brings to our health.
    Seeds are available.
    WhatsApp: +229 96 33 62 59

  12. futures are standardized and exchange traded contracts, what you explained in your video is a forward contract

  13. Well explain showing support and appreciation for the content all the way from the Land of Mt.kILIMANJARO. Tanzania

  14. Trading from the raw price data of the market will work to simplify how you view and think about the market, and of course how you trade it. There’s simply no reason to over-complicate the trading process by adding outside variables like indicators or economic news, these variables only cloud up your thinking and analysis process. If you really want to be profitable in as little as 2 weeks you should get a hold of the IQD strategy from Lukasz Wilhelm. It is the best thing that has happened to my trading career.

  15. As an industry insider who makes a living from retail speculation in both the currency and commodity markets, beating the market is 100% possible but you need the right information to do that. One of such highly profitable system is the IQD momentum strategy developed by Lukasz Wilhelm. It is mostly used on the trading floor and now accessible by retail traders. You can look him up on google and contact him to mentor you if you want to be profitable.

  16. just started college and this was one of the first things in my text book and i got lost really quick. This video REALLY helped me understand what was going on. Thanks!!!

  17. Since I joined Trading,I’ve learned a lot. I didn’t learn only from Lukasz Wilhelm and the moderators, but also from the people in the chat. the pre-market preparation with and the swing trade analysis . I’m glad I made the decision to join the IQD Momentum strategy team!

  18. The most important rule of trading commodities is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible draw down. if you want to learn in depth, i highly recommend you to get "Lukasz Wilhelm" course and own ebook that covers one of the most powerful trading system in history. ask google now, and view website..

Leave a Reply

Your email address will not be published. Required fields are marked *