Large companies moaning about having to post collateral against derivatives have forgotten the real value of hedging, argues Philip McBride Johnson.
The year is 1859. Somewhere in pre-Great Fire Chicago, a man
gestures somewhat obscenely to another gentleman and the
nation’s very first futures contract is
Chances are, this soon-to-be Cubs fan made the contract for
a Midwestern farmer (or his grain elevator) to hedge against
bad weather, bad luck or bad genes. A specific number of
bushels of pretended grain were thereby created.
Odd, when you think about it. Here is a fellow who is
worried about a glut of real wheat that will depress his
selling price while, in response, he exacerbates the situation
by inventing make-believe grain as well. Anyway, he has his
Now comes the bad news. "You owe me a commission," says the
trader to the farmer, "as well as a margin deposit of
This article is available to subscribers and registered users
Please log in to continue reading.
Not yet registered? Take a free trial.
If you have already taken a free trial you
have ongoing access to the analysis section of FOW.com including this story.
Log in using your details below to read.
Already have an account? |