Archive of Our Own ^beta

Futures, a Treatise

By Sir Hermann Loren

Originally Published in “The Economics Courier”

Reprinted, with author’s permission, in 101 Financial Concepts for the Young Heir

We have discussed forward contracts here in the past, but for this edition of our bimonthly economics newsletter, I decided to bring up something new that has recently been making waves in a foreign nation. Over in the nation of Croa, they have recently conceived of a version of this that works much better for those who are interested in the speculation side of the commodities market.

For a refresher, or for those who are new, a forward contract is a customizable, non-standardized agreement between two parties that agrees that the two parties will buy and sell a specific asset at a specific time and price. These instruments are magnificent for hedging bets and, if you so desire, speculating in the market, but they require quite a bit of effort for the casual trader, especially for products that already hold set prices that are commonly accepted.

This brings us to the main topic of this article, the futures contract. To start with some history, approximately five years ago the rice traders down in the capital of Croa decided to optimize their auction format for the buying and selling of rice via voucher. The nobles who were heavily invested into the rice trade decided to create an exchange market with two separate means of exchange, shomai and choaimai. We’re only interested in the latter, as the former is the old system they were using and that which most industries and markets in our country use. But I digress. I had the opportunity of visiting the exchange and seeing this process firsthand not too long ago, and am happy to share the details with you. Like the Roscents revolutionized the practice of arbitrage, mayhap another Family will strive to make this their legacy this generation.

So, what is a futures contract? It is a standardized agreement between two parties that agrees that two parties will buy and sell a specific asset at a specific time and price. The fact that they are standardized means that they can be easily traded on public exchanges. Now, why this over a forward contract? Firstly, they’re easier. The terms are already laid out & oftentimes you do not even need to find another party yourself. The clearinghouse takes care of that for you. Secondly, for speculation: similar to the stock market, you can take short and long positions. If you believe the price of the commodity will rise. Conversely, if you, the trader, speculate that the product will decrease in price you can instead settle on a short position.

As members of the nobility, we have a duty to find, research, and implement ideas and inventions that will in the long term lead to the betterment of our esteemed empire. You must lead the charge, so that the commoners will fall in line behind us. In the end, even if they try to trade, we’ll end up on top. We have the advantage of information which they could never dream to have.

Thank you for reading this short paper, esteemed peers. Next edition, I will discuss the differences between Western Options and Eastern Options.

Aria lay her head on her bed, placing the book down, consumed by thoughts of whether she could use this idea and her future knowledge to make a profit. She didn’t remember anything of the sort entering the public eye of this nation before her second life, but it could have been a matter of her not having paid attention to economics. Or so she hoped as she smirked into her covers.

Several months later, she was faced with a series of investments, sent to her by Baron Burboom. One stood out to her, as it was a proposal for investment in a service-based business as opposed to the manufacturing and retail that normally landed upon her desk. A Baronet Freuling was requesting money to set up a commodities exchange where interested parties could partake in auctions to acquire or sell said commodities. To her dismay, she needed to reject it, as though it was something she was paramountly interested in, the Baronet had not conducted and sent her enough of his research and findings that would prove that he’d be able to turn a profit. How was he planning to persuade the nobles, as in the ones who’d be purchasing the bulk of the product, that this was a more efficient, better method than that which they already used.

Another meeting, another day of staring at the Lady Aria Roscent. By the crown prince, that is. Not by him, nope, never.

“He’s loved her from first sight, but does he need to be so obvious? I can only act as his shield for so long,” thought Rain as they sat in the meeting room discussing the actions of the aristocracy.

As they continued talking, he noticed Lady Aria was nearly silent. Why not fix that? “Great! Now that we’ve discussed the current state of the casino, what’s next?? What about the continued luxury goods crisis?”

The prince, previously leading the conversation with a placid face, suddenly quirked up his lips, his eyes glimmering with a sense of curiosity and mischief. “So, the price sugar is selling at is now 40 times higher than it was before the crisis. Thoughts?” queried the prince as he placed an elbow on the table and rested his cheek on his fist, his eyes probing all the other attendees.

Off to the side, Rain’s face dropped. Lady Aria wouldn’t respond to such an open question. If you want to speak to her more, please learn to flirt better, my prince.

Conversation started, with the consensus being that they should let the price rise further. The aristocrat faction deserved to suffer, after all. After the conversation started to wind down, Lady Aria interjected.

Twirling a loose strand of hair around her index finger, she started, a gentle smile on her face, “We can’t make use of this now, but what if we set up a proper exchange market? With the knowledge we have, and the fact that we would be controlling prices, all here would be able to earn quite a bit if something similar happened with another product down the line. As soon as a product’s available supply decreases, while demand remains constant, price rises after all. If we control the supply, we control the monetary flow. We could, if needed, use proxies to deliver the product. It’s just a thought though, you don’t need to listen to me. I’m not sure that it’ll even work.” Aria’s voice petered off, as she receded back, and let the other participants continue to discuss.

In the end, a consensus was not reached on the creation of a futures exchange, but several members did say they would be conducting research of their own to check the viability of such a venture.

Once the members of the group started filing out from the meeting room, Rain came to stand next to his liege. “Rain leave the room and shut the door behind you. Aria, stay here.”

Rain closed the door and stood near it, to hopefully pick up errant sentences from the remaining two people in the room. Would Asher confess? Probably not, but he could hope.

“It’s great to speak with you, Lady Aria Roscent. I’ve not had the opportunity to chat with you post-meeting recently. How did you like today’s topic of discussion?”

Aria’s dulcet tones rose up, “It was quite enjoyable. Rain took a more active role than usual today. Did you ask him to?”“He did it of his own free will. I don’t know what his reasoning was, but he acts as my proxy often enough that I don’t tend to stop him.” The prince sounded almost sheepish, and vaguely resigned. An interesting set of emotions for someone who remained so oblivious to his own feelings, Rain thought.

Their voices became quieter, with all that was carrying through the door being vague murmurs. He suddenly heard footsteps, and shifted away from the door.

“I guess I don’t hate you after all. You may even be enjoyable company,” she said as she walked up the stairs, leaving the two of them behind.

“Shall we depart then?” Rain asked, and so they did, leaving the meeting room behind them, cold and empty until the next time they gathered.

Soon, they both hoped.