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Gold/Mining/Energy : Daytrading Canadian stocks in Realtime -- Ignore unavailable to you. Want to Upgrade?

To: Canuck Dave who wrote (57377)	9/20/2002 8:27:05 PM
From: Vitalsigns	Respond to of 62347

When you say a manufacturer will go into the market and buy the real stuff , that is true and not true. If price was stable and had no fluctuations , then a manufacturer would not have to worry about price increases in the future in their business plan. But we all know that price is affected by demand and when demand rises , so does price. The kicker is , if a price increase is expected over the next 12 months and a company wanted to shield himself fronm this increase , he could lock in prices today in anticipation of rising demand by buying Futures now and taking delivery in 12 months. In reverse a supplier that is anticipating lower prices of say oil in the future , can sell his stock now at higher prices to those who want it thereby locking himself at higher prices over the next 12 months and hedging himself against falling prices. Spot price and Futures are very closelly tied in the sense they both serve a useful purpose for the supplier and manufacturer. The speculator also serves a purpose by increasing liquidity so that prices tend to be closer in spreads which help reduce the transaction costs of large buyers and sellers over time. The problem occurs when when too many are leaning in the same direction , short or long, and the contract roll over occurs . This can cause a temporary demand spike. In some cases, there are more paper transactions outstanding for particular supply compared to actual real inventory which can also cause problems. This is just a short synopsis and I hope this helps explain some of the roll over period problems. I wish I had more time to explain it in more detail.