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The warehouse is a theoretical construct, in practice. Whatever the market does and whatever investors want their position to be (long, short..), they can take
by dalbasal 7y ago
The warehouse is a theoretical construct, in practice. Whatever the market does and whatever investors want their position to be (long, short..), they can take that position without any physical wheat actually entering or leaving a silo.
- dragontamer 7y agoBut the arbitrage is settled physically. When oil-storage was filling up, oil-futures drop in response (because the market knows that physical space was running out). That's the thing about the world: people exist in it, and can change the world. Increasing the number of warehouses (to make more money) is a good strategy, and the futures contracts provide a means for allocating these investments more efficiently.