Topic · Core Finance & Asset Classes
← All topicsCommodities
64 articles · 7 checkpoints · 36 deeper reads · 21 reference notes
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A standardised, exchange-traded promise to buy or sell a physical commodity on a future date. Margin replaces the price, daily settlement replaces trust, and the shape of the futures curve tells you what it costs to hold the stuff.
The two shapes a futures curve can take. Contango means later delivery costs more, backwardation means it costs less, and which one you are in decides whether simply holding a futures position bleeds money or earns it.
A futures price is not a forecast, it is an invoice. Financing, storage and insurance push it above today's spot price, while the benefit of holding the physical goods pulls it back down.
Electricity can't be stored, so it trades in two linked markets, a day-ahead auction that schedules generation, and a real-time market that corrects the schedule minute by minute as actual demand and supply arrive.
A commodity futures contract prices delivery at one specific place, so the same barrel of oil or bushel of corn is worth a different amount depending on where it physically sits relative to that place.
OPEC+ sets production ceilings for each member, but the number that actually moves oil prices is how much extra capacity sits idle and ready to be turned on, the market's shock absorber.
Firms like Vitol, Glencore, and Trafigura make money moving real barrels and tonnes across time, space, and quality grades, a different business from betting on which way prices move.
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