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Futures prices: rising and falling - which means

Futures prices: rising and falling - which means

In many news feeds, there are headlines of such a plan every other time - futures for some asset then decreased during trading, then increased. And some exchange-traded assets are indicated directly in the prices of futures contracts (the same oil on the chart, for example).

What does this mean and what is the point?

For example, consider oil.

When it is said that oil futures go up and down during trading, it means that the prices of oil futures contracts change during the trading session.

A futures contract itself is an agreement between a buyer and a seller to buy or sell an asset (in this case oil) at a predetermined price on a certain date in the future.

If oil futures prices decline, it usually means that investors and traders believe during trading that the supply in the market exceeds demand or that an increase in oil reserves is possible. It may also reflect geopolitical events, production deficiencies, or changes in the global economy.

If oil futures prices rise, this may indicate increased market demand, reduced supply, expectations of higher prices, or other factors that may lead to an increase in the cost of oil.

Such changes in oil futures prices can be caused by a wide range of factors:

  • Changes in supply and demand in the oil market.
  • Economic data (for example, on the state of the economy, oil reserves, etc.).
  • Geopolitical events (conflicts, sanctions, etc.).
  • Changes in the policies of oil exporting countries, including OPEC.
  • Market speculation and traders' expectations.

The key in futures prices is precisely the expectations of market participants about the future state of the economy and based on expert forecasts for a decrease or increase in demand for a particular asset.

Since, on the exchange is that a larger volume of trading transactions is speculative (earnings on price changes), and not actual deliveries, then prices for them are indicated specifically futures (near future), and not spot (the current price of the asset is here and now).

Therefore, when talking about the price of an asset interpreting it through futures, you just need to understand - this is the current forecast of the asset price at the closing date of the futures contract.

автор - Михаленко Р.
M R. Автор - kaktotak.by Specialization: financial and economic design - modeling of business, investment projects of the real sector, analysis and evaluation of efficiency, optimization of the management decision system.

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