Make Futures Cool Again
Any lover of markets, when looking at equity and options markets, turns to the futures market with a hint of sadness.
Equity markets have their cocaine-bear-semiconductors, options have their Zero Days, but what do futures have? Where is the innovation? Where is the soul?
If futures weren’t so elegantly simple, perhaps we could forget it and let it go. Perhaps we could just buy NVDA and panic-sell it 15 minutes later for the tenth time this year (and it’s only Q1). Or maybe we could silently go and trade way-out-of-the-money daily options, because we too enjoy the thrill of low probability adventure. We might find solace in the haze and confusion of non-linear and complex modeling. It is a confusing world, after all. Maybe options are the product we deserve.
No, simple, linear futures were once the pride of Chicago. Before the financialization, before the casino, the first standardized corn contract opened at the Chicago Board of Trade in 1851, for hedging. Over the years on those wooden floors, through the ruthless anarchy of the pit, the modern derivatives market was built. Today she stands at a notional market of quadrillions of dollars, run mostly silently through computers (boring!). And, somewhere along the way, futures got left behind in the public psyche.
How Ceres cries tears of molten aluminum as she watches over La Salle! The best, liquid product for simple directional exposure, these powerful instruments for building two-way markets (long and shorts) and responsible leverage, have been unduly eclipsed. Please, do not throw ETFs at me. ETFs are not better, with their long-biased designs and hard-to-borrow rates (looking at you USO, you butcherer of oil!).
Some say the two-headed-monster duopoly in regulated futures markets are an insurmountable discouragement to innovation. They say the age of the future is over, that the product cannot evolve, and that it has not fundamentally changed for 150 years. They say that futures’ best days are behind us.
Do not believe it. The future will rise again.