Futures and options contracts can often get a bad rap for being the tools of speculators. However, they also play an invaluable roll in our economy. Without futures contracts, the stability of consumer markets could erode, subjecting us all to the at-time volatile commodities markets. If the price of coffee shoots up, as it is wont to do in the event of a drought in Brazil or Vietnam, we don't want to suddenly find ourselves paying more for our daily cup, sentiment shared by coffee shops. With futures, the markets can smooth off that volatility and allow producers and consumers to protect themselves against these fluctuations.
This video from TD Ameritrade's (AMTD) Investools takes a fascinating look inside how futures contracts are used and traded, both by level-headed farmers looking to protect their bottom line and wild speculators interested in leveraging their assets for maximum return. Tracing their history all the way back to the rice trade in feudal Japan, the video explores how futures contracts are a valuable addition to our economy.
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