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Futures prices increase and decrease largely because
of the myriad factors that influence buyers' and
sellers' judgments about what a particular commodity
will be worth at a given time in the future
(anywhere from less than a month to more than two
years).
As new supply and demand developments occur and as new and
more current information becomes available, these judgments
are reassessed and the price of a particular futures
contract may be bid upward or downward. The process of
reassessment--of price discovery--is continuous.
Thus, in January, the price of a July futures
contract would reflect the consensus of buyers' and
sellers' opinions at that time as to what the value
of a commodity or item will be when the contract
expires in July. On any given day, with the arrival
of new or more accurate information, the price of
the July futures contract might increase or decrease
in response to changing expectations.
Competitive price discovery is a major economic
function--and, indeed, a major economic benefit--of
futures trading. The trading floor of a futures
exchange is where available information about the
future value of a commodity or item is translated
into the language of price. In summary, futures
prices are an ever changing barometer of supply and
demand and, in a dynamic market, the only certainty
is that prices will change.
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