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Some Terminology (‘Lingo’)Futures are securities and also derivatives
Securities: in essence assets that are– fungible (inter-changeable)– tradeable
(pencil example if necessary)
Derivatives: instruments that derive their value from the price of some other underlying entity
• Futures differ from stocks/bonds• Stocks/Bonds transfer capital• Futures transfer price risk
Why Learn about Futures at AllMarkets are fundamental to economics; efficient prices are key to maximizing social welfare
Price Discovery:Futures Markets where they exist, determine the ‘correct’ prices for commodities (for better or worse) – all participants base their decisions on the clearing prices
Wrong PricesWrong prices lead to suboptimal human behaviour – deforestation, overfishing, overcultivation, overconsumption, over-construction (houses in US,Iceland, Spain, etc, New South China Mall in China)
We excel at killing the only planet we haveNearest possible alternative exoplanet is 12 light-years away, about 142,000 years with current technology
Important for EveryoneCorporate Careers Government Careers Consultative WorkUp or Downstream(Producer or Processor)
Policy Makers Non-profit Organizations
IntermediariesTrading Companies
Financial Institutions
Regulatory and Supervisory Roles
Economic Think Tanks
Stay-home speculators (social parasites)
Battling immoral opportunistswhether banks/corporates/individuals
知 己 知 彼百 战 百 胜
Know yourself, Know your opponentA hundred battles, a hundred victories – Sun Tzu
Weapons by themselves are neutralUse the enemy’s weapons against themBattle of Red Cliff – straw boats/arrows
Distortions in the Futures Markets
Read the testimonials of Michael Masters , an honest Hedge Fund Manager who fought for better markets:• 2008: To the Committee on Homeland Security and
Governmental Affairs, US Senate• 2009: To the CFTC
Derivatives Exchanges and Products
• Directory Listing at Mondo Visione’s Website• Also, check out the World Federation of
Exchanges website. Their IOMA 2012 survey gives global statistics on derivatives trading worldwide