every day thousands of people go to work at the Chicago Board of Trade where they frantically buy and sell Futures contracts for things like corn wheat cattle milk and lumber to be clear they're not buying and selling those things they're buying and selling a kind of contract for those things whereby they can make money if the price of them goes up or down in the future the Futures Contract is a legal agreement to buy or sell a particular commodity asset or security at a predetermined price at a specified time in the future it would work like this let's say you and I sign a contract that says I will buy corn from you in three months for six hundred dollars per bushel then we wait three months and we look at what the market price for corn is relative to six hundred dollars if the price is more than six hundred dollars I win because I will be able to buy corn from you for six hundred dollars and then instantly resell it at a higher price pocketing the difference if the price is less than six hundred dollars you win because you can just buy the corn at the lower market price and now I'm required to buy it from you for six hundred dollars and you pocket the difference Futures contracts are a kind of speculation which is the attempt to profit from future price changes speculators try to buy low and sell High that's it and for every winner in speculation there's an equal and opposite loser Wall Street is often derided for not really contributing to society because it's engaged only in speculation I've seen lots of people make comments like this one Wall Street doesn't fly any planes or raise any corn or do anything else in the way of producing products and services this was a comment on an article by a Cornell law professor who was making the case that Wall Street doesn't provide anything valuable to society is that true we looked at how changes and expectations can impact the price of a commodity like oil if demand for oil is expected to fall in the future it means the future price of oil will be lower than it otherwise would have been and that's going to encourage producers to increase the supply of oil now hoping to increase their profits in the long run speculators are the key to this process by speculating in the future price they have the effect of moving resources through time to the point where they will be valued the most in Haiti there's weak Economic Institutions and markets routinely fail to reach equilibrium as such loggers have cut down almost all the trees there but the bordering Dominican Republic has maintained strong institutions of property rights and free markets and there firms have incentives to use their resources wisely but what is it that encourages a firm not to blow through resources quickly why wouldn't they just cut down all the trees and sell them right now at a profit the answer is speculation if firms started cutting down trees unsustainably a Speculator might buy a contract that lets them buy lumber in the future at a cheap price knowing that soon there will be none left and the price will be high but in doing this that Speculator is pulling more of that resource into the future they're essentially sitting on some trees and waiting for the world to run out and come to them but by sitting on some trees they're preserving that resource for the future when speculators buy and sell things like Futures contracts they're participating in a market which is setting the expected price for the future each Speculator brings with them information about a commodity which might impact its future price they may be looking at related markets or something else all of that information from every Speculator is aggregated into a market price for futures contracts just as markets aggregate information about resources and opportunity costs and compliments and substitutes into one price which maximizes consumer and producer welfare markets can also aggregate information about the future into the best possible prediction of how it will go and those prices can serve as a guide for producers whose products take a long time to come to Market a farmer would love to know the price they'll get when they sell their crop when they plant the seeds and Futures markets actually let them do just that so that they can make the best decisions possible markets for futures contracts are very good at seeing into the future no one person has enough insight to know what will happen but collectively we do The Economist Richard roll found that the Futures price of oranges was so sensitive to the weather that it could be used to improve the forecasts of the National Weather Service so what else can we predict with markets