Hedging and speculation: A discussion on the economic role of commodity futures markets (including the oil markets)

Abstract

In the United States, there is a rich historical experience with controversies over futures trading that date back to the nineteenth century. After a brief recounting of history, this chapter notes that a review of U.S. history provides valuable lessons in figuring out what is necessary for commodity futures trading (including oil trading) to continue and prosper during times of political pressure. Essentially, one finds that the following actions have been indispensable in responding to past controversies over futures trading: (1) an increase in transparency in showing how these markets actually work; and (2) an improvement in public education on the economic usefulness of commodity markets. This chapter endeavors to help in providing precisely that education.