Case studies on the success or failure of futures contracts

Abstract

Why do some futures contracts succeed and others fail? Although the U.S. futures markets have evolved in a trial-and-error fashion, research suggests key elements have determined whether particular futures contracts succeeded or failed. This knowledge could be useful for new financial centers as they build successful futures markets. This paper shows that there are three elements that determine whether a futures contract succeeds or not: 1. There must be a commercial need for hedging; 2. A pool of speculators must be attracted to a market; and 3. Public policy should not be too adverse to futures trading