PL> Is it true that for every loser there is a winner when
PL> dealing in futures or does that only apply to options?

RS> That gets a bit philosophical. You can argue that its not true,
RS> that there is a real sense in which one party can basically be
RS> ensuring a certain result, instead of a less certain result. For
RS> example if you think a currency is about to drop, you can in effect
RS> fix the effect that has on you, someone else wears the actual result.
RS> That is essentially what futures were intended for originally.

PL> Sorry Rod, I did not quite get what you meant by the above reply.

Yeah, thats probably a classic example of an explanation which
makes sense if you already know what its trying to explain |-)

One use for futures is to fix your gain, not so much to
just try to 'win' in the sense of guessing the market right.

Lets say that today, you have some sheep with wool on them, due
to be shorn in say 3 months. Now you look at the current price
of wool, and you look at what the market is prepared to offer on
wool futures. You may find that they offer a price 20% higher than
the current price of wool. One use of futures is to allow you to
take that 20% higher price today, lock it in for use when you shear.
So in that case you have benefited because that price is a certainty.

Now it may be that 3 months later the actual market price for wool
is 30% higher that in was when you bought that wool future. What you
have actually done is fixed your 'win', you have benefited, AND the
seller of that futures contract has TOO. He makes the 10% and you make
the 20%. You have both won, so there isnt a winner and loser, two
winners in fact. Tho neither as as big a winner as the best possible win.

You have locked in a guaranteed profit, and forgone some
profit potential. And eliminated any possibility of any loss.
Assuming say wolves dont eat all your sheep tomorrow anyway.

--- PQWK202