Fundamentals of Commodity Futures Markets

Abstract

Using a very broad definition, a market is a place that puts sellers and buyers in communication with one another, where prices are discovered, and where ownership may be transferred. This applies to every market, small or big, and the futures markets everywhere. In general, the economic function of marketing adds space and time utility to a commodity or asset. The important role of futures markets is facilitating the time dimension of marketing by permitting buyers and sellers to conduct transactions calling for delivery at some future date. This is accomplished using specific trading rules and regulations laid down by the exchange bylaws. These rules, the exchange's highly formalized and organized nature, and the characteristics of futures contracts make the market unique. Thus, this paper aims to present the most important fundamentals of commodity futures markets theoretically. This paper has reached many conclusions. Most important among them is the futures market doing social functions that serve some social purpose. It would most likely have passed from existence some time ago if it did not. Futures markets are meeting the needs of three groups of futures market users: those who wish to discover information about future prices of commodities, those who want to speculate, and those who wish to hedge. That means the main three functions of futures markets are hedging, price discovery, and speculation. The paper approaches many recommendations. Most important is a necessity to satisfy all the needed requirements to establish such a market in Iraq and prepare an encouraged investment climate to attract the international financial institutions which play a crucial role in inducing a market's trading activities and activating its global presence instead of constrain it and make it like the narrow local model of markets, especially with outstanding physical base of Iraq (in the crude oil field at least) which can be modified to success such proposal.