Creation of more Futures

This is a discussion on Creation of more Futures within the Futures & Options forums, part of the Markets category; I understand how futures are traded and settled. However, for the creation of futures Wikipedia states : Futures contracts are ...

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Old Aug 23, 2017, 4:05pm   #1
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Joined Aug 2017
Creation of more Futures

I understand how futures are traded and settled. However, for the creation of futures Wikipedia states:
Futures contracts are not issued like other securities, but are "created" whenever Open interest increases; that is, when one party first buys (goes long) a contract from another party (who goes short).
So this means that futures contracts with the same contract rate, e.g. 20USD for 1kg of coffee, may be created at different points in time with different current market prices for coffee.

So say on day 1 that the market price for 1kg coffee is actually 20 USD, then I understand why two parties will enter into a contract with a contract rate of 20USD for 1kg coffee.

However, say on day 2 that the market price for 1kg coffee is now only 18USD. Why would anyone enter as a buy party into a newly created contract with the same contract rate of 20USD, when the market price is now only 18USD?

I created an example spreadsheet with a few calculations to show my confusion:

As you can see, for Contract 2, the Buyer would be entering into a new contract that had a starting value of -2 USD, so he would not do that.

Please note that this question is only about newly created futures - not about futures already created which are then bought or sold.

Last edited by fimp; Aug 23, 2017 at 4:31pm.
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