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Essay / Research Paper Abstract
This 5 page paper analyzes a sample futures contract in white wheat. Both a practical and technical analysis is performed and an overview on derivatives is provided. Bibliography lists 6 sources.
Page Count:
5 pages (~225 words per page)
File: D0_Wheat.doc
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one of this new breed known as derivatives and there is a great deal of risk embedded in such contracts. A futures contract by definition is "an agreement to take
(i.e., by the buyer) or make (i.e., by the seller) delivery of a specific commodity on a particular date" (Scott futures PG). It is further described noting that commodities and
contracts are standardized so that an active resale (secondary) market is assured (PG). Futures contracts exist for a variety of items like foreign currencies, metals, and grains (PG). There are
numerous advertisements on the television and radio enticing people to use only risk capital for such investments (PG). But futures contracts still boils down to a form of gambling. With
much more at stake than, say, investing in a stable stock portfolio for the long term, futures is somewhat like playing the horses. II. The Futures Contract: Fundamental
Analysis In analyzing a futures contract one must be cognizant of several factors. The first is that one should, as with any investment, gather as much information as possible as
important differences may exist which can affect profitability ("Understanding" PG). In understanding the futures contract, it is most readily explained by choosing a contract for review. Figure 1 is a
futures contract taken from the Internet to be used as a sample only. Some contracts have what is known as a Position Limit, where maximum speculative positions are dictated
in order to prevent any one buyer or seller from being able to exert too much influence on the price of positions and is ordinarily noted in terms of number
of contracts or units of commodity ("Understanding" PG). In the sample contained in Figure 1, a Speculative Position is only suggested as being "those limits currently in effect pursuant to
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