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Major problems arise in perpetual contracts with some of the physical
commodities such as grains. For example the difference between jul and
sept or sept and dec (or nov) can be very large due to old crop vs. new
crop. Other times the differences may be small. Just averaging these
pairs seems to be a BIG approximation. In particular suppose Jul corn
is at 4.00 and Sept corn is at 3.00 (due to a current shortage but
anticipated large new crop) In real trading you will have to jump from
one contract to the other. You will *not* experience the benefit or
loss from the gap. In perpetual, the Sept contract will slowly gain
weight in the average. If real prices were perfectly flat you perpetual
contract would go from near 4 to near 3.00! You system might take a
short and report a profit of $5000 when in fact no such profit actually
could be made.
My feeling is that perpetual contracts, if useful at all, would be best
used in the non-agricultural commodities: financials, currencies and
maybe metals.
[not an expert!!]
Conrad Bowers
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