What Should We Do?

Compared to stocks and bonds, futures were a little harder to understand.

After all, stocks were shares, while bonds were merely debt. Futures seemed far more complicated.

But after some discussion, people suddenly realized that futures were actually quite simple.

A future was merely an agreement on the price of goods in advance. Both parties signed a contract, and when the time came, they could collect the goods with that contract.

In other words, spot goods were tangible commodities that could be traded, while futures were contracts traded between two parties.

The Futures Market was even simpler.

The so-called Futures Market was simply a place where everyone traded these orders.

Take steel as an example. The current price of steel was five copper coins per kilogram. A merchant went to Rost Steelworks and ordered one hundred kilograms of steel. Both sides signed a contract, and three months later, the merchant could receive one hundred kilograms of goods from Rost Steelworks. He would need to pay five hundred copper coins.

But one month later, with two months remaining until delivery, rumors suddenly spread that the world's largest Iron Ore mine had been depleted. The price of iron ore rose, causing the price of steel to soar to ten copper coins per kilogram.

The merchant felt that the risk was actually quite high. He believed that steel was the one thing the world would never lack, and its price might fall again by the time of delivery two months later. So, he took the order to the Futures Market to trade it.

Steel now cost ten copper coins per kilogram, and this order entitled its holder to receive one hundred kilograms of steel two months later.

That meant whoever held the order could obtain one thousand copper coins' worth of steel.

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