Recently, a lot of attention has been paid to various initiatives for organized futures market trading. As DCA, we regularly receive requests to help set up a futures market for various agricultural products. The question often stems from dissatisfaction with the selling price for that product.
DCA-Markets often starts such a project with an investigation into the structure of the market. How do buyers and sellers compare in terms of numbers, volume and market share? And is there perhaps already a structure in which price agreements are already being made for the long term? For a futures market, in the sense of an open platform, it is important that both buyers and sellers are active. And as in any market they must find each other in an equilibrium price at which they both want to trade. This already shows that futures markets do not necessarily ensure that a better price is achieved. This is determined by market conditions and the balance between supply and demand.
It is also important to know how futures trading should be organised. This can be done by listing a contract on an existing futures market such as CME, EEX or Euronext. At the other end of this spectrum, there are 1:1 contracts between supplier and buyer in which it is mutually agreed upon on which term and which reference price (benchmark) will be delivered. In between is, for example, an auction that facilitates trade, whereby in addition to spot trade, delivery takes place in the future.
Which solution is best differs per situation, per market and per product.
Are you curious how we as DCA approach and guide the above? Or would you like to spar with us to solve similar challenges within your company or sector? Then call 06 46 26 58 74 or email R.vantRiet@DCA.nl
© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.