The Futures game: exploiting the gap.

by Captain Walker

Categories: Business & Finance

My venture into ‘derivatives’ – that evil thing associated with some ‘criminal’ bloke’- has led me to think a lot more about how we assess the future. futures_market

By way of introduction, futures contracts – in the simplest form – are meant to agree  prices for various things in the future (e.g. oil, orange juice concentrate etc.) These things are tradeable via various means (GIYF).  The main point is that if a seller agrees a price on a barrel of oil and the market price goes up, then the buyer is happy. If the seller agrees a price and market price falls, well then he’s happy i.e. he got his money before losing ground (and money).

The amazing thing about all this is the way it’s opened my eyes to lots of ‘futures games’ – things that were obvious to me, but hitherto unappreciated. Some examples follow, and tough if you don’t agree with them or don’t like them. Where I am now (financially and otherwise) in life, is the result of several key decisions made in the past. Overall they have been good decisions i.e.  good education taken advantage of, good profession, property bought at right time, adopted a new homeland at the right time etc.

The futures game is the basis of some everyday shopping events. If you spot a good deal on something that you regularly use, you buy it cuz you know that it’s price is much higher elsewhere or over the next few weeks. You take that decision based on your wide knowledge of the item over months. You don’t roll the dice and say, “If it comes up as a 6, I’ll buy!”. Well if you do, or want to make an argument for that, you’re an idiot. Off you go – away from here.

I’m afraid when people hear about ‘futures’ they start seeing £ and $ signs in their heads – and everything else tends to get blotted out. If you’re not one of those, then focus.

The decisions I make today will put me at tangible or intangible advantage or disadvantage in the future. Yes – I know the yarn about not crossing bridges before you reach them. They should burn that saying!! I could prepare options in advance of reaching the bridge. I could decide I don’t like bridges – and I want to fly over the divide – or dig a tunnel – or swim across a stream – because I may have assessed the situation and decided that the bridge is too risky to use. But how I cross that divide is the important issue. To want to cross it, means that there is promise of some advantage on the other side. The bridge is simply one means to getting across.

So should I wait until I reach the bridge and then discover, “Whoops.. it’s rotten and dangerous.. bugger me… what do I do now?” Well there are classes of fools who do that every day. Like no – I want to ensure that my means of getting to where I wanna be are reasonably robust. So advance assessment of risk and capacity are appropriate.

Next – I was thinking about the futures game in crossing roads. Yes – roads. Busy roads. Imagine you’re an average pedestrian. You want to cross the busy road, to gain some advantage to you – well most people – but there are some idiots who just cross for the hell of it. I’m not dealing with them. So – how are you gonna cross. Do you close your eyes and trust in the good lord to stop the traffic just in time? Do you use a pedestrian crossing (cautiously)? Do you use traffic lights at a crossing? Do you roll dice and if a 2 comes up count the next 2 cars that pass you and make a dash for it, regardless? Well, I’m being purposefully ridiculous. Most people assess the flow, the stream of traffic, the speed of vehicles in either direction and take a calculated risk about when to cross. It’s about finding that gap. It certainly ain’t about rolling dice. I dare say the future arising from the dice technique takes you six-foot under rather quickly, so if that is the desired advantage then go for it!! But I can say for sure that no dice required at all to effect such a future.

Futures of any kind are about assessment of the future, the desired advantage to self or others, assessing risk, managing risk and taking a balanced and reasoned strategy ahead. Nobody said that all that is the recipe for success!!! Not me – so stop! What I am saying is that maximising the probabilities of success in one’s future is something that can be done. It’s also possible that the best assessment and strategy fails regardless of safeguards. Here’s the news: Life comes with one – single – guarantee – it’s a thing called death.

Not everybody is a success in life (do I need to say this – jeez). People get knocked back by circumstances out of their control, all the time. However, I am not addressing those matters here today. I am talking only about the things that one can exert some reasonable control over in the present.

Hmmm.. So what’s next?” – I dunno!! You’re asking me? You want me to tell you?!! Chrysst!! Get out of here.. go! Go and chart your own future!

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