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Old 12-03-2011, 01:37 PM
cpratcli
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Default Futures Contracts Question

I'm studying for the exams and reading through the book but I'm confused regarding futures contracts. I have not had to use them before in my profession, so my experience with them is pretty much nil.

I was under the impression that hedging was agreeing upon a future price for a commodity and that was it. In reading the book, they gave the example of in April the commodity price is $3.47 and he/she buys a futures contract for September of $3.55. Then it says "If the spot(cash) price rises, typically the futures price will rise by a similar amount". This is the statement that confused me.. if your futures price rises, what is the point in even dong a futures contract? Why not just do a spot buy then?

thanks in advance

-Charlie
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