Futures Trading and Hedging

  • Holbrook Working


A good deal of difference of opinion on the utility of futures trading persists even among economists who have studied the subject rather closely. Some, at least, of this disagreement is traceable to imperfect concepts that emerged in connection with early academic studies of futures trading. Such concepts have tended to survive on the strength of their partial validity, despite shortcomings evident to the well-informed. Businessmen and others who are intimately acquainted with futures trading and its consequences tend to realize (often unconsciously) the defects of such imperfect concepts, to employ the concepts so far as they are valid and useful, and to avoid drawing any seriously mistaken conclusions from them. People who have little direct knowledge of futures trading and its observable results have no such protection against false inferences. If, like most economists, they are accustomed to rely on deductions from what seem to be well-established premises, they are especially vulnerable to the imperfections of basic concepts.


Future Market Future Price Future Contract Spot Price Future Trading 
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  1. 1.
    This, in two sentences, is the story that can be read from scattered comments in Charles H. Taylor, History of the Board of Trade of the City of Chicago Chicago, 1917. Passages in Vol. I, pp. 146–47, 192, 217, 317 and 332, among others, cover the main developments through 1865, when the Board of Trade at last assumed responsibility for aiding and governing the conduct of futures trading.Google Scholar
  2. H. C. Emery, in Speculation on the Stock and Produce Exchanges of the United States New York, 1896, traces the history of trading that had at least essential characteristics of that done in futures, from institution of the use of warrants by the East India Company in 1733 (p. 35), and says that ‘Futures were sold in some kinds of grain in Berlin by 1832, and some years earlier in France and Holland’ (footnote, p. 41).Google Scholar
  3. 5.
    See, for example, the evolution of definitions from H. C. Emery, op. cit., p. 46, through J. G. Smith, Organized Produce Markets, London, 1922, p. 44.Google Scholar
  4. C. O. Hardy, Risk and Risk Bearing, Chicago, 1923, pp. 205–06.Google Scholar
  5. J. B. Baer and O. G. Saxon, Commodity Exchanges and Futures Trading, New York, 1949, pp. 132–34.Google Scholar
  6. 6.
    See, for example, the summary of much earlier work in G. Wright Hoffman, Grain Prices and the Futures Market, U.S. Dept. Agric., Tech. Bull. No. 747, January 1941, pp. 33–38.Google Scholar
  7. 9.
    For example, such an inference seems to follow from information in Blair Stewart, Trading in Wool Top Futures U.S. Dept. Agric., Circ. No. 604, August 1941, pp. 16–26.Google Scholar
  8. 10.
    See Holbrook Working and Sidney Hoos, ‘Wheat Futures Prices and Trading at Liverpool since 1886,’ Wheat Studies of the Food Research Institute, vol. XV, 1938, pp. 125, 142–44. I would now attach less importance than is done there to the uniformity of the quality of the Californian wheat, judging that factor to have been important mainly in the preference for the Californian over the Indian wheat contracts, in which also there was effort for a time to maintain futures trading.Google Scholar
  9. 13.
    Cf the Federal Trade Commission’s Report on the Grain Trade (Washington), vol. I, 1920, pp. 213–27; and vol. VII, 1926, pp. 38–57; and Holbrook Working, ‘Financial Results of Speculative Holding of Wheat,’ Wheat Studies vol. VII, 1931, pp. 417–28.Google Scholar
  10. 21.
    Two instructive explanations of hedging written by hedgers themselves, such as are not often found, are: Ellis D. English, ‘The Use of the Commodity Exchange by Millers,’ Proceedings, Fifth Annual Symposium Chicago Board of Trade, 1952, mimeo., pp. 22–29; Virgil A. Wiese, ‘Use of Commodity Exchanges by Local Grain Marketing Organizations,’ ibid pp. 108–16.Google Scholar
  11. 24.
    For example, T. W. Schultz in Production and Welfare of Agriculture, New York, 1949, pp. 172–74.Google Scholar

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© Palgrave Macmillan, a division of Macmillan Publishers Limited 1976

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  • Holbrook Working

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