Futures trading is a market just like the stock market. The general principal is that price is set by traders who study the futures commodity, and determine its value – much like stock traders do (for example using a P/E ratio to value a company’s future earnings in today’s dollars).
As the market sets prices for commodities, rises in prices ripple through to finished goods as price increases.
One Response to “Can Sum1 Pleaaase Explain To Me As To How Futures Trading Influences Price-rise Or Inflation?? Thanks.?”
Well, the best way to explain it is the Psychological perspective.
The commodities market pricing is a reflection of the longest range expectations of traders.
If they are pessimistic about what the availability or price will be in the future, they will buy and push up the price.
If they are optimistic about what the availability or price will be in the future, they sell and push the price down.
Since commodities traders are often experts, they are more often right than wrong (not always, just more often than they are wrong). If they are right, the prices will rise as supply contracts, or as the equilibrium price adjusts upward.
Also, they buy up future supply of a product thus making the supply available smaller. They then sell their supply of the product (or more precisely, their right to buy it) at a inflated price so that they can make a profit.
These are the two major reasons why they influence real prices.
Hope this helps,
Good luck!