Now that we\u2019ve touched on and explored some of the different types of risks in the futures, and broader financial markets, let\u2019s now discuss why the price of a futures contract differs from the price you might pay now.<\/p>\n
The current market settles on a \u2018spot\u2019<\/strong> basis, which is typically for immediate delivery, where \u2018Immediate\u2019<\/strong> could mean two days. Or, for example, in a supermarket, you would likely find that the cash price would equate to what you pay for, say, corn at the cash register, and while shoppers can generally buy corn throughout the year, the crop might be harvested just once annually.<\/p>\n It\u2019s the role of the futures market to draw-in all known information about next year\u2019s crop, and figure out what the forward or future\u2019s price is.<\/p>\n And this is where producers, hedgers and speculators get together on a near-24-hour basis to assimilate the latest information and reflect it through what is called price discovery.<\/p>\n This is important information to global financial and physical market participants, as futures allow them to see the current price of a product not yet produced.<\/p>\n If we take a look at the prevailing market price for the current corn contract, for instance, and compare it with, say, the price of a futures contract that expires in a year, we can note the difference<\/strong> between these prices as the basis.<\/p>\n Changes in the basis deliver their own message to producers. Should forward prices reflect too much supply of a specific commodity at a future date in time, a farmer, for example, might decide to switch to a less abundant crop.<\/p>\n In our next video, we\u2019ll discuss futures prices a bit further, providing some insights into concepts known as contango and backwardation.<\/p>\n","protected":false},"excerpt":{"rendered":" Understand what \u2018the basis\u2019 in the futures market represents, and what the process of arriving at this information means for producers, hedgers and speculators.<\/p>\n","protected":false},"author":2,"featured_media":221430,"parent":0,"comment_status":"open","ping_status":"open","template":"","meta":{"_acf_changed":false,"footnotes":""},"contributors-categories":[13576],"traders-academy":[13125,13128,13132],"class_list":{"0":"post-175906","1":"trading-lessons","2":"type-trading-lessons","3":"status-publish","4":"has-post-thumbnail","6":"contributors-categories-interactive-brokers","7":"traders-academy-beginner-trading","8":"traders-academy-level","9":"traders-academy-trading-lesson"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\n\n