• Podcasts
    • Grammar Girl
    • Curious State
    • Get-Fit Guy
    • Money Girl
    • Project Parenthood
    • Relationship Doctor
    • Modern Mentor
    • Nutrition Diva
    • Savvy Psychologist
    • Who Knew?
    • Unknown History
    • Modern Manners Guy
  • Books
  • Categories
    • Health & Fitness
    • House & Home
    • Parenting
    • Relationships
    • Pets
    • Education
    • Tech
    • Productivity
    • Business & Career
    • Money & Finance
  • Offers
  • About QDT
What's Hot

Thrive in the Workplace by Building on These Pillars

March 27, 2023

Post-Training Soreness: Are You Getting Stronger?

March 24, 2023

Grammar Quirks: Juan Gomez-Jurado on His ‘False Friend’ in Writing

March 22, 2023
opens in a new window Facebook opens in a new window Twitter opens in a new window Instagram
Quick and Dirty Tips
  • Podcasts
    • Grammar Girl
    • Curious State
    • Get-Fit Guy
    • Money Girl
    • Project Parenthood
    • Relationship Doctor
    • Modern Mentor
    • Nutrition Diva
    • Savvy Psychologist
    • Who Knew?
    • Unknown History
    • Modern Manners Guy
  • Books
  • Categories
    • Health & Fitness
    • House & Home
    • Parenting
    • Relationships
    • Pets
    • Education
    • Tech
    • Productivity
    • Business & Career
    • Money & Finance
  • Offers
  • About QDT
opens in a new window Facebook opens in a new window Twitter opens in a new window Instagram opens in a new window Pinterest
Quick and Dirty Tips
You are at:Home » Can Futures Contracts Help Companies Fight Against Inflation?

Can Futures Contracts Help Companies Fight Against Inflation?

By Jeff Broth, ContributorFebruary 22, 2023No Comments4 Mins Read
opens in a new window Facebook opens in a new window Twitter opens in a new window Pinterest opens in a new window LinkedIn opens in a new window Tumblr opens in a new window Email
stocks going up and downopens IMAGE file
Share
opens in a new window Facebook opens in a new window Twitter opens in a new window Pinterest opens in a new window WhatsApp opens in a new window Email

We are now facing the highest inflation rate in four decades after long months of fighting the pandemic and lockdowns around the world. The war in Ukraine is also a factor in the worse economic situation for people and companies. As small businesses have to deal with the highest prices of gas or electricity, can Futures contracts help them hedge against inflation?

The problems of inflation 

Without a doubt, almost all companies around the world are struggling with the high inflation rate. It’s the effect of the pandemic of Covid-19 when we bought less, so the companies reduced production. As soon as the restrictions were lifted, our lives returned to normal. Despite the growing demand for products, the companies were unable to meet them, resulting in higher prices.

Small companies surely struggle the biggest battle against growing prices of electricity, gas or petrol. Despite the optimistic FED’s Inflation Plan, investors may try to hedge against inflation by trading with Futures contracts. Is it an effective method that gives the chance of frozen prices of products?

How to hedge against inflation with Futures contracts? 

The idea is simple. You need to buy tomatoes for your ketchup production. Looking at the recent rise in prices, you may not be able to afford to buy them for the next season. You may decide to trade Futures with Plus500 in the US. If the price of tomatoes continues to grow, the value of the contract will increase too. Your business will have to pay more for the tomatoes, but the profits from the Futures contract will offset the extra costs. 

If you grow tomatoes, you may do exactly the same thing. Calculate the desired profit and offer your tomato Futures contract to the companies that need to buy from you. In this situation, any decline in the price is not your concern, as you will get the price set. You may lose too in the case when the costs of cultivating tomatoes will exceed your planned margin. 

To invest or not to invest – that is the question

Some businesses may expect more benefits from investing in Futures contracts than others. It concerns companies that rely mostly on raw materials, such as mining or agricultural businesses. Those that rely on them should consider the steps too. You may check the news telling you all about the Futures contracts market changes. Those who are dependent on commodities like gas may also try to freeze the prices in this way. 

In the case of companies not using raw goods, they may try to moderate their supply a bit if the prices go too high for them. Investing in Futures contracts is risky, as it concerns speculating about financial markets. You may be excited to pay less for the ordered goods, while their price drops, and you will pay more. Producers may also think their margin will be satisfying for them, while it may occur too low.

There is also a big group of investors, who don’t intend to buy any goods but only speculate on Futures. It’s possible as Futures are liquid, and up to the time of expiration, investors may easily sell them or buy new ones as well. It’s a chance for traders who don’t own the underlying commodity. All they do is speculate on the direction of the specific commodity market. To make it possible, they have to buy or sell the Futures contract prior to expiration. 

Anyone who wants to start their adventure with a Futures contract needs to be aware of the risks. They’re mostly connected with margin. When it comes to margins in general, there is a great deal of risk of leverage, which can make the investor lose more than his original investment. Maintaining a margin on the account is important and it is only when there is enough money in the account that the margin level is restored if the asset’s price changes.

In the event that a customer’s balance drops below the maintenance level, a margin call will be issued. You must pay this amount to re-establish your initial margin. 

To sum up, it’s possible to earn money by investing in Futures contracts. Yet, everyone must be aware of the potential risks, which may lead to financial losses.

Jeff Broth, Contributor


Add A Comment

Comments are closed.

Don't Miss

Thrive in the Workplace by Building on These Pillars

By Rachel CookeMarch 27, 2023

Construct a Thriving Employee Experience I use a framework to help companies understand the employee…

Post-Training Soreness: Are You Getting Stronger?

March 24, 2023

Grammar Quirks: Juan Gomez-Jurado on His ‘False Friend’ in Writing

March 22, 2023

Expert Advice on Real Estate Investing and Syndication

March 17, 2023
Stay In Touch
  • opens in a new window Facebook 12K
  • opens in a new window Twitter 25.7K
  • opens in a new window Pinterest 18.5K
  • opens in a new window Instagram 123K
  • opens in a new window YouTube 23K
  • opens in a new window Vimeo 11.2K
Our Picks

Thrive in the Workplace by Building on These Pillars

By Rachel CookeMarch 27, 2023

Post-Training Soreness: Are You Getting Stronger?

By Kevin DonMarch 24, 2023

Grammar Quirks: Juan Gomez-Jurado on His ‘False Friend’ in Writing

By Editor, Grammar GirlMarch 22, 2023
opens in a new window Demo

Don't miss

Never miss another tip! Join our list to get updates from your favorite hosts delivered straight to your inbox
Sign Up
ABOUT US
logo-img

Whether you want to manage your money better, rock your professional life, stay fit and eat healthy, or discover the keys to better mental health, Quick and Dirty Tips delivers short-form podcasts and articles every week to keep you at the top of your game, usually in ten minutes or less!

Email: contact@quickanddirtytips.comcreate new email

QUICK LINKS
  • opens in a new windowHealth & Fitness
  • opens in a new windowHouse & Home
  • opens in a new windowParenting
  • opens in a new windowRelationships
  • opens in a new windowPets
  • opens in a new windowEducation
  • opens in a new windowTech
  • opens in a new windowProductivity
  • opens in a new windowBusiness & Career
  • opens in a new windowMoney & Finance
  • opens in a new windowHow to listen
  • opens in a new windowPrivacy notice
  • opens in a new windowAds & Cookies
  • opens in a new windowTerms of Use
  • opens in a new windowAbout QDT
  • opens in a new windowOur Hosts
OUR PICKS

Thrive in the Workplace by Building on These Pillars

March 27, 2023

Post-Training Soreness: Are You Getting Stronger?

March 24, 2023

Grammar Quirks: Juan Gomez-Jurado on His ‘False Friend’ in Writing

March 22, 2023
opens in a new window Facebook opens in a new window Twitter opens in a new window Instagram
Copyright © 2023 Macmillan Publishing Group, LLC. Quick & Dirty Tips™ and related trademarks appearing on this website are the property of Mignon Fogarty, Inc. and Macmillan Publishing Group, LLC.

Type above and press Enter to search. Press Esc to cancel.