(ORDO NEWS) — For the first time, the Chicago Mercantile Exchange launches trading in water futures contracts: now it will be able to trade on a par with oil and gold futures this week.
It seems that water has already become no less valuable resource than oil and gold.
The Chicago Mercantile Exchange (CME) announced plans to start trading contracts for ordinary water back in September this year, when wildfires were raging on the west coast of the United States. Now this idea has passed all the stages of approval by the regulatory authorities and it will be possible to buy a futures contract for water this week. American traders attribute the inclusion of water to the list of commodities on the exchange by the fact that risk management associated with water scarcity is becoming more important.
Currently, two billion people already live in countries suffering from water problems, and in just four next years, almost two-thirds of the world may face water shortages, experts say. Therefore, the exchange, with the approval of the authorities, begins to trade water futures, following the example of transactions in oil or gold contracts. A futures contract, or simply futures, is an agreement to buy or sell an asset at a specific time in the future at an agreed price.
Historically, futures contracts were created to secure the price of commodities farmers had yet to produce. The commodities market expanded over time to include products other than just agricultural produce, such as NYMEX Natural Gas and gold futures. The exchange has traded oil and precious metals futures for decades. As the underlying asset for futures, the Chicago Mercantile Exchange took the California Water Index, which has existed since 2018. This index sets the price of California water rights on a weekly basis. The California water market is now $ 1.1 billion.
One contract will include 12.34 million liters of water. Traders believe that futures will provide some kind of insurance against price increases for California’s largest water consumers, and will also become a universal indicator of water scarcity around the world. Water contracts will not require a physical supply of water after they expire. The subject of exchange will be the monetary difference between the price of the contract and the actual price of the asset on the date of the contract.
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