Standardized futures contracts let traders exit obligations without the original counterparty
Evidence
If, for example, one of the parties to a futures contract wished to be free of the obligation it imposed, he or she did not have to negotiate with the original counterparty for a cancellation of the contract, but could simply enter into an equal-but-opposite futures contract with a third party. Although when the specified delivery month arrived a futures contract could in principle be settled by handing over elevator receipts, which could be exchanged for actual grain, in practice delivery was seldom demanded. Contracts were normally settled by payment of the difference between the price stated in the contract and the current market price of the corresponding grade of grain. A future was thus “an abstract claim on the golden stream flowing through [Chicago’s] elevators” (Cronon 1991, p. — Donald MacKenzie, An Engine, Not a Camera, 74
Categorization
- XREF: Offsets in futures echo the bilateral-obligation-freeing logic of Milgrom’s law-merchant institutions and standardized trade instruments in earlier chapters. — connects to: Futures markets need infrastructure beyond self-interested participants to succeed — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 69; Futures trading requires the underlying asset be abstracted as a standard — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 70; Derivatives let investors trade an asset’s attributes without the asset itself — Andrew deWaard, Derivative Media: How Wall Street…, 486 (+2 more)
Broader Connections
- Derivatives let investors trade an asset’s attributes without the asset itself
#expands(0.80) — Andrew deWaard, Derivative Media, 486 - A derivative dismantles an asset into tradeable attributes without trading the asset itself
#expands(0.80) — Andrew deWaard, Derivative Media, 335 - Financial derivatives unbundle assets into tradable attributes without ownership transfer.
#expands(0.78) — Andrew deWaard, Derivative Media, 169