How Futures Trading Works

I said a while back that I’m going to start monitoring oil so I can get a feel for what’s going on and what’s going to happen. I generally don’t trust most news reporting because of the "if it bleeds, it leads" policy, among other reasons. I can remember stories back in 2002 and 2003 stating that "gas will hit $4 a gallon this year." While that did eventually happen, it took until this year, 2008, to happen, making the reporting from 5 and 6 years ago highly inaccurate.

Any research into how the oil market works will inevitably come across some discussion of "futures trading" and "oil speculating." I’m not sure how that works entirely, but I have heard that "futures traders are responsible for the mortgage mess we’re in" a few times. I don’t know what kind of truth is in that statement. It seems like greed, impatience, and shortsightedness on the part of both homebuyers and lenders was a large part of the cause, and yes, I take some credit for that as I am in my own mess in that regard from some shortsighted decisions I made.

Anyway, I came across this brief primer of how futures trading works, and how Congress, which won’t allow any drilling for oil on our own shores, is starting to haul oil futures traders in front of their committees as they have run out of oil executives to blame.

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