Product futures are a type of financial derivative that allows investors to speculate on the future price of a particular product. Product futures contracts are traded on exchanges and are used by producers and consumers to hedge against price volatility. Check here for more information.
Product futures entail predicting future market trends and acting on them accordingly. Investors can do this in many ways, but the most common method is through conducting market research.
Businesses use market research to understand what consumers want and need and what they may be willing to pay for specific products or services. This information is then used to make decisions about what products or services to offer in the future. Several factors predict future trends, including social, economic, technological, and political factors.
Social Factors
Demographics is one of the most important social factors to consider when predicting future trends. It includes age, gender, income, education, and occupation. Other social factors to consider are lifestyle changes and social norms.
Economic Factors
Economic factors to consider when predicting future trends include inflation, interest rates, unemployment rates, and gross domestic product (GDP). These factors can all have a significant impact on consumer spending patterns.
Technological Factors
Technology is constantly changing and evolving, making it difficult to predict future trends. However, there are a few vital technological factors to keep an eye on, including the advancement of mobile technology, the growth of e-commerce, and the increasing use of artificial intelligence (AI).
Political Factors
Political factors affecting future trends include trade agreements, government regulations, and tax laws. These factors can all impact the availability of products and services and the cost of these items.
How businesses predict future trends in the marketplace
Market Research
There are several different methods of market research, including surveys, focus groups, interviews, and observation. Businesses can use one or more of these methods to gather data about potential future trends.
Social Media Analytics
Social media analytics is another tool businesses can use to predict future trends. It involves using software to analyse social media data, such as posts, comments, and hashtags. This data can give businesses insights into what consumers are talking about, what they’re interested in, and what they might be looking for in the future.
Data Mining
Data mining is extracting data from sources and then analyse it to find trends. This data can come from various sources, such as customer databases, transaction records, and social media data. Businesses can use this data to understand consumer behaviour and predict future trends.
What affects product futures’ prices?
Underlying commodity prices
The price of the underlying commodity has the most direct impact on the price of a product’s future. If the price of crude oil rises, for example, gasoline will likely rise as well.
The weather
The weather and climate can significantly impact crop production, which in turn can affect the availability and the prices of agricultural products. A drought, for example, could lead to higher prices for corn and soybeans due to a lower supply, provided that the demand remains at more or less the same levels.
Geopolitical events
Political and economic events around the world can affect commodity prices. For example, tensions between an importing and exporting country may lead to higher prices of wheat, soybeans, cocoa, and more, due to tariffs or import bans.
Exchange rates
Exchange rates can also affect commodity prices. A strong British pound, for example, may make UK exports more expensive and thus lead to lower prices for products.
Risks of trading product futures
Credit risk
When trading product futures, there is always the risk that the counterparty will not be able to meet their obligations, known as credit risk. To mitigate this risk, you must trade with a reputable counterparty and only trade products backed by a central clearinghouse.
Liquidity risk
Liquidity risk occurs when there is insufficient trading activity in a particular product’s future to allow traders to buy or sell their positions quickly. It can lead to significant price swings and make it difficult to exit a position.
Market risk
Market risk is the risk that a product’s future price will move against the trader’s position. Traders can mitigate this risk by using stop-loss orders and limit orders.