The is down in China. As of February 1, the prices of oil were falling. Oil futures were down by close to 4%. Gold is still steady, but other goods like metals and crops were also sliding, according to U.S. data. The commodity futures market is going down because of several reasons.
Phillip Futures Pte Ltd says that a futures contract is an agreement between a buyer and a seller. The contract states a specific product, a date and a price, which both the buyer and seller agree on. Falling commodity prices means falling futures prices. What are other things that make the commodity futures market trip?
Government policy makers and regulators work to protect the futures from manipulation. Market participants, however, find it hard to deal with the cutbacks in the futures market. Reports say future prices in the equity market are determined and transacted with electronics. Security also comes in electronic form.
Most exchange data are online, which makes the market transparent. If there is any manipulation, regulators can easily take measures to protect fresh investors and other stakeholders. While this is a good thing, regulators may impact equity prices, as they catch manipulators and protect investors.
Although looking after transactions is easier through electronic means, physical commodities are still in accredited warehouses during exchange. There are no digital means to look after goods and spot prices during trade. Thus, information about the market often has flaws. This is another reason why the market is down.
Movement in currency also affects the market. As the economy and currency change, the futures market fluctuates. The commodity futures market moves because of buy and sell activities. In the international exchange, prices do not immediately reflect changes in money value. Thus, sales are hard to predict, and they often end up decreasing.
Studies show a drop in currencies around the world. Only the Japanese Yen, the Swiss Franc and the New Zealand dollar maintained positive growth as of February 2, Tuesday. The outlook of the futures market does not look rosy, based on what is happening now. The good news is that in a dynamic market, change is permanent, and most prices don’t stay down or up forever. When things get better, the future of commodity futures may look brighter.