Quote Originally Posted by thcbongman
The futures market is basically buying rights to future oil sites, it's a limited market to begin with, demand was bound to go up since we are dealing with a resource that depletes.
The futures market is not buying the rights to future oil sites.

The futures market is a market of contracts to buy and sell a commoditiy at a set price on a future date. In the case of oil, it is a contract that says one party agrees to buy a barral of oil at a set price on a future date and another party agrees to sell the barrel of oil at that set price on that set date. There are also futures markets for all kinds of other commodities like corn and "pork bellies" (Whatever the hell that is! No futures market for snouts, just bellies). Futures markets are very important and useful tools for producers and users of commodities because futures contracts help to remove uncertainlty from their businesses.

For example a farmer might not know exactly how much he is going to be able to sell corn for at harvest time --- maybe there will be a crop failure and prices will be high becasue of low supply, or maybe there will be a bumper crop and prices will be low. A futures contract allows him to lock in the price. He won't be ruinied if the price drops, but he won't make a windfall if the price is high either. Same deal for a buyer of corn -- they can lock in a price and remove uncertainty.

There are also people who get into the market who are not producers or users of the commodity. They never actually want to own or handle the commodity --- only the contracts. They are speculators who get into the market to make money buying and selling contracts. Theoretically they help in the process of "price discovery."

It seems like the only way to make money as a speculator in a futures market is to actually be really good at guessing what the actual real market price of an item is going to be and how the price is going to move over time. Seems like the real supply and the real demand will set the real market price. But apparently there is something I don't understand, because you hear all this talk about how the price we are paying for gas is not the "real" price --- it's been market up by "speculators." I don't get that. I'm not actually sure how futures market speculation affects the ACTUAL price --- sems like supply and demade would always drive that, regardless of futures specualtion, and if speculators were trading overpriced contracts, the THEY would be the ones losing money. No one has been able to explain this to me.
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