Futures Markets

Look, but don't touch


Futures Markets are bets on the future. There is a price today for one share in Shell, or one barrel of oil. If you want a guess at the price of one share in Shell or one barrel of oil in three months time you must find it in a futures market and contract to buy or sell it. In three months time you will either take or make delivery, note the actual ('spot') price at that time and feel either pleased or annoyed at the price you contracted three months earlier. In the real world, for reasons we are not prepared to explain, you will most likely have already sold or bought back the contract you made earlier and no physical delivery would have taken place.

Futures markets are an essential part of modern markets, allowing flexibility and the diversification of risk in ways that would otherwise be impossible. As a simple investor you can manage perfectly well without them. If you think they should have a role in your savings plans you are either misguided or you should be writing this website instead of reading it.