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Author Topic: I'd like to buy 150bTc for 44$ each...  (Read 2401 times)
saykor
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July 04, 2011, 02:49:24 PM
 #21

if he find someone to buy it of course.

who will buy the contract on price 44$ when it is 150$ in the moment and will lose a money?
The contract is traded on market prices. There's always a market. That's how it works.

the contract is to supply xxx goods and receive a yyy money. nobody care how it will supply it. If it will buy or produce the goods it is choose on supplier

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July 04, 2011, 04:23:20 PM
 #22

if he find someone to buy it of course.

who will buy the contract on price 44$ when it is 150$ in the moment and will lose a money?
The contract is traded on market prices. There's always a market. That's how it works.

the contract is to supply xxx goods and receive a yyy money. nobody care how it will supply it. If it will buy or produce the goods it is choose on supplier

I'm sorry, but I really don't understand what you're saying. Correct me if I'm wrong, but it almost seems as if you're trying to refute the notion that futures contracts are traded on an exchange.

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saykor
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July 04, 2011, 04:32:18 PM
 #23

if the contract is to buy 150BTC for 44$ each to December what is the difference and who care if this 150BTC is buy now, produce for 6 month or buy in December?

The idea is the buyer to get his 150BTC on 44$ each. Right?

I not will care from where seller will have 150BTC to give me ( if i am the buyer ). I not will care if he buy them now on 15$, produce it in the next 6 month or buy in December. If the seller cannot supply the 150BTC then he need to buy them on the price in December of course.

I only ask how is the system. I am not a stock exchange trader.

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July 04, 2011, 04:55:11 PM
 #24

I'd be willing to do it, but what guarantee do I have that you will actually have the money and pay for them in December?
saykor
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July 04, 2011, 04:57:08 PM
 #25

I'd be willing to do it, but what guarantee do I have that you will actually have the money and pay for them in December?

both side need to pay some deposit who will lost if one of the side is not correct

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PatrickHarnett
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July 04, 2011, 07:07:08 PM
 #26

if he find someone to buy it of course.

who will buy the contract on price 44$ when it is 150$ in the moment and will lose a money?
The contract is traded on market prices. There's always a market. That's how it works.

the contract is to supply xxx goods and receive a yyy money. nobody care how it will supply it. If it will buy or produce the goods it is choose on supplier

I'm sorry, but I really don't understand what you're saying. Correct me if I'm wrong, but it almost seems as if you're trying to refute the notion that futures contracts are traded on an exchange.

They don't need to be traded on an exchange - many contracts are done directly between buyer and seller (say a physical delivery wheat contract).  You buy my crop next year for $200/t and I'll deliver 1000 tons.  If there is a drought, I'm in trouble, if the weather's good, I'll do ok.

You might then decide to on-sell the contract, and an exchange facilitates that.
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July 12, 2011, 04:39:29 PM
 #27

Just to clear thing up… What is this possible deal is all about?
For sure, I'm not an idiot want to buy something 3 times more than it actually worth.
 Actually, I'm investing thousands of dollars but I don't want to spend more than I have, but, for sure,  by the end of the year I'll make some more money I can invest (I'm not a salary, I'm doing projects). So, I'm thinking about the possibility to invest money I'll have by the end of the year.

 Also, by making futures I'm making bitcoins worth more (Joe thinks: why should I  sell my coins now, while there are lot of guys who are ready to pay 3 times more for that. So, I'll ask more - it's not a great impact, but in case if there will be more people making futures it may has this effect).

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July 15, 2011, 08:14:51 AM
 #28

Last I saw I thought you were testing this as an idea, rather than actually doing the trade - has that changed?
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January 16, 2012, 12:48:07 PM
 #29

Last I saw I thought you were testing this as an idea, rather than actually doing the trade - has that changed?

 Now I can tell... D-E-F-I-N-I-T-E-L-Y not, lol  Cheesy.

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January 16, 2012, 12:57:34 PM
 #30

It could be an awesome pwned, because He could bought them for less money in September. Roll Eyes

PS: Economic bubbles never are good.

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January 16, 2012, 01:49:25 PM
 #31

Futures only make sense if you have a futures EXCHANGE.

Nobody would pay >$x for delivery TOMORROW (or next year) if the price is currently $x. They could simply buy at $x.

A futures exchange removes counterparty risk AND allows leverage.

You can buy for >$x for delivery tomorrow (or next year) for a fraction of $x and only pay the difference on delivery.

realnowhereman
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January 16, 2012, 02:27:15 PM
 #32

A Future contract is an entirely different animal. With a future contract there is no payment upfront either way, it is an outright buy per a date in the future, at a price agreed upon at the outset. Both parties are obliged to fulfill the contract at the end of the agreed upon period.

Hmmm, I'm not a finance guy, so I don't know; but this doesn't sound right.

I thought that futures worked so that you bought something now that the seller doesn't have yet.

The classic example is the farmer.  The farmer can sell (say) wheat at $100 a kilo in September; but to do so he needs to spend money now to buy seeds, labour and tools.  If he doesn't have that money, he will get $0.  A futures buyer offers $90 per kilo right now; giving the farmer the capital he needs to produce the wheat.

i.e. the money changes hands now; the product changes hands in the future.

Have I misunderstood?

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January 16, 2012, 03:42:22 PM
 #33

A Future contract is an entirely different animal. With a future contract there is no payment upfront either way, it is an outright buy per a date in the future, at a price agreed upon at the outset. Both parties are obliged to fulfill the contract at the end of the agreed upon period.

Hmmm, I'm not a finance guy, so I don't know; but this doesn't sound right.

I thought that futures worked so that you bought something now that the seller doesn't have yet.

The classic example is the farmer.  The farmer can sell (say) wheat at $100 a kilo in September; but to do so he needs to spend money now to buy seeds, labour and tools.  If he doesn't have that money, he will get $0.  A futures buyer offers $90 per kilo right now; giving the farmer the capital he needs to produce the wheat.

i.e. the money changes hands now; the product changes hands in the future.

Have I misunderstood?

The example of the farmer relates more to the uncertainty of the weather and conditions. He does not get paid now, but is guaranteed to get a set revenue in the future. He is setting the future price now, and that price varies as we get closer to the maturity date. The counter risk is that if there is storm that ruins all the crops, the farmer does not go broke but the other one loses out.

DeathAndTaxes
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Gerald Davis


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January 16, 2012, 03:59:34 PM
 #34

A Future contract is an entirely different animal. With a future contract there is no payment upfront either way, it is an outright buy per a date in the future, at a price agreed upon at the outset. Both parties are obliged to fulfill the contract at the end of the agreed upon period.

Hmmm, I'm not a finance guy, so I don't know; but this doesn't sound right.

I thought that futures worked so that you bought something now that the seller doesn't have yet.

The classic example is the farmer.  The farmer can sell (say) wheat at $100 a kilo in September; but to do so he needs to spend money now to buy seeds, labour and tools.  If he doesn't have that money, he will get $0.  A futures buyer offers $90 per kilo right now; giving the farmer the capital he needs to produce the wheat.

i.e. the money changes hands now; the product changes hands in the future.

Have I misunderstood?

The example of the farmer relates more to the uncertainty of the weather and conditions. He does not get paid now, but is guaranteed to get a set revenue in the future. He is setting the future price now, and that price varies as we get closer to the maturity date. The counter risk is that if there is storm that ruins all the crops, the farmer does not go broke but the other one loses out.

Exactly futures don't allow upfront payment of non-delivered goods.  I mean can you imagine the counterparty risk of that.    Futures just allow you to LOCK IN  a futures price.

So in the farmer example say the farmer's cost is $3 per bushel.  The current market price is $8 per bushel which would be a record year for the farmer.  However the farm has huge risk.  He looks out and sees the harvest time futures contract is $7.85 per bushel.

Now the farmer could just do nothing wait till harvest hope it is good and sell for whatever the market price is.  What is everyone's harvest is above average and the price plummets by harvest time.

The farmer can lock in revenue stream NOW.  He doesn't get the cash now (he doesn't get any cash until settlement) but it protects his future revenue stream.  Likewise the baker locks in a price for his raw goods.  Granted the price is "high" but the baker may estimate he can still be profitable @ $8 per bushel but if the crop is very bad and prices skyrocket to $20 per bushel he would be ruined.

Futures are simply a way to trade RISK.  The farmer and baker are trading RISK.  The speculators aren't buying bushels of wheat they are buying RISK.  The counterparty to the farmer wins if the crop is worse than expected and prices rise.  The counterparty loses if the crop is better than expected and prices fall.

Now if the counterparty had to worry about the farmer delivering that woudl make trading contracts very difficult.  Every contract would be different (not fungible) due to different counterparty risk.  An exchange requires the farmer to put up a deposit which is "locked" when he sells the contract.  This allows the exchange to guarantee the contract and eliminate counterparty risk.  Now farmer A contract is equal to farmer B contract and they can simply be traded as "generic" wheat futures.  The exchange can also allow buyers to buy with only a fraction of the contract  cost.  At expiration if the buyer doesn't have the cash to buy the contract in full then he can simply sell it to someone else and still profit from the difference (contract price vs current market price).

So TL/DR
A futures deal only make sense if an exchange exists because the exchange providers counterparty insurance, liquidity, and leverage.
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Gerald Davis


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January 16, 2012, 04:06:48 PM
 #35

The classic example is the farmer.  The farmer can sell (say) wheat at $100 a kilo in September; but to do so he needs to spend money now to buy seeds, labour and tools.  If he doesn't have that money, he will get $0.  A futures buyer offers $90 per kilo right now; giving the farmer the capital he needs to produce the wheat.

i.e. the money changes hands now; the product changes hands in the future.

No there is too much risk in that.  So farmer gets money up front and decided to skip town to caribeean, or wasn't really a farmer at all, or had a bad harvest.  The exchange would eat the cost or the buyer would eat the cost.  If the buyer eats the cost then you can't have a "wheat future" you have a "farmer Bob, SSN xxx-xx-xxxx credit score: 720, 2.2 acres in southern nebraska, 18 years experience wheat future".

It becomes non-tradable because each future contract's risk varies from contract to contract. 

No to "fix" your example above.  The farmer sells a future's contract.  He gets NO MONEY.  Yes his exchange account will be credited w/ the funds but he can't withdraw them because it is something like this

Cash: $100,000
Futures Contract -12,500 bushels of wheat to be delivered at x on x day.

He can't remove the cash until he satisfies the contract.

NOW he can go to the bank, use his brokerage account as collateral and take out a loan or line of credit against it.
When his harvest comes in, he delivers the wheat, clears the contract from his brokerage account, repays the bank, and keeps the balance.

PatrickHarnett
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January 16, 2012, 08:14:02 PM
 #36


So TL/DR
A futures deal only make sense if an exchange exists because the exchange providers counterparty insurance, liquidity, and leverage.

I'll disagree with some points - mainly:

You don't need an exchange - that helps trading contracts, but OTC futures are bilateral.
Usually futures require an initial margin - an upfront payment, and margin calls to manage settlement risk.
Many cases you can be prepared to pay >$x if the price is $x now - reasons include time use of money/cost of funds, or even costs of storage.

As for the poor farmer example I agree - it can work against you too.  Funding cost of production ($3) in the hope of an $8 payoff crashes and burns when the drought wipes out the crop.  In order to satisfy the contract they might need to by at $20!  (based off a real example - farmers on wheat contracts walked off their land and simply defaulted.)
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