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I've been extensively involved with the creation of the new NYMEX contracts
for electricity. I came from the electric utility industry. IMHO, here are
the real answers to the two questions asked.
> Why do we have contracts that expire by a specified month?
>
Because modern futures markets grew out of the futures markets for grains
where specific months of delivery were (and still are) important. However,
I believe this practice continues in many commodities simply because this is
the way that the market makers know how to continue to make money; i.e.,
they know how to arbitrage between cash and futures, they know how to make
money off rollovers, etc. Bottom line: more money in the pockets of market
makers. Please don't misunderstand me, I don't necessarily consider this a
bad thing. However, all attempts to create a different type of contract in
the electricity market were rejected by NYMEX.
> Why can't we have (continuous contracts) (?) like the spot FOREX market?
>
We will when one or more individuals are willing to put enough money behind
the creation of a liquid marketplace that doesn't rely on a futures contract
definition that came out of the 19th century. For electric energy in
California, an electricity spot market to do this is now available in
California. The prices in the California Power Exchange are published daily
in the Wall Street Journal.
Ross Kovacs
> ----------
> From: rjb@xxxxxxxxxxxxxxxxxxx[SMTP:rjb@xxxxxxxxxxxxxxxxxxx]
> Sent: Tuesday, July 21, 1998 9:32 AM
> To: realtraders@xxxxxxxxxxxxxx
> Subject: Re: Continuous Contract Data
>
> >Good Morning RealTraders:
> >
> >QUESTIONS:
> >
> >Why do we have contracts that expire by a specified month on the CME?
>
> Many speculators (that's us) tend to forget why the markets exist in the
> first place. Futures contracts are forward contracts that exist solely for
> the purpose of laying off the risk of doing business onto people willing
> to
> take that risk (i.e., us)
>
> Farmers want to be able to know what they will be selling their wheat for
> before it is harvested (or even planted). Bakeries want to be able to set
> their prices for Twinkies with some consistency. US firms being paid in
> Swiss Francs want to make sure they get paid a certain US dollar rate.
> Anyway, you get the idea.
>
> >
> >Why can't we have (continuous contracts) (?) like the spot FOREX market?
> >
> >
>
> I suppose philosophically, the markets are "continuous" but they are not
> "contracts." As far as I know nobody is stopping you from buying anything
> you want. There are "spot" or "cash" markets in every tradeable commodity.
> Want 40,000 lbs of live cattle or 5,000 bushels of corn?. Hey, no problem.
> Just pick up the phone and order it.
>
> >Richard J. Chehovin
>
>
>
>
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