WARNING: Read me before buying OOO, page-471

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DavoMagic

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23/04/20

15:17

Post #: 44215151
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Originally posted by lordofthetatas: ↑

Because the futures market is the representation of the physical market for most commodities, specifically those with expensive storage, transport or perishable qualities.

The fact that financial traders use the same market (and represent the overwhelming volume of trade) is just a by product. There is no other "index" in which one can simply buy and hold crude oil. any such index would need to be priced based on the underlying market that prices said commodity..... being futures.

In theory you could structure a product that is based purely on spot price....? but spot is not something that is well published for retail consumption and the product would no doubt be some kind of pure swap agreement, so something that can only be negotiated by insto investors, like a customised bet between hedged funds.

You couldn't however turn this into an open ended product as there would be no way for the arranging party to hedge their exposure (they would need t constantly find another party willing to take the opposite bet, manage the counter party risk etc or attempt to use futures, which exposure them to huge basis risk).

Bottom line, you can't just jump onto a brokerage account and buy a long term exposure to the pure oil price, just like you can't for wool, coffee, sugar or most other commodities (precious metals are the exception because you and buy, transport and store them just like hard currency).

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You can't because its not offered. If it was offered then you have a market.

Surely , as indicated here they is speculative demand for rises and falls in the price of future oil which creates its own market. Hedging would not be necessary for participants in the market if their is liquidity.

Why would you hedge if the purpose is speculative upside or downside gain??

If liquidity is there one can exit at any point

OOO Price at posting: $19.36 Sentiment: None Disclosure: Not Held
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WARNING: Read me before buying OOO, page-471

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