Water

World’s first water futures contracts enter US financial markets

World's first water futures contracts US financial markets

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Published

December 10, 2020

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Published:

December 10, 2020

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The world’s first water futures entered the financial markets in the United States. Investors won’t actually own water with the complex contracts they buy, but potential spikes in the benchmark price for California may spill over to expenses for ordinary people worldwide.

As planned, CME and Nasdaq have introduced a market for bets on California water prices. While investors in the United States don’t have the ability to buy actual water, they will earn or lose money through wagers on water futures. But the everyday changes in the valuations of the complex financial contracts may indirectly affect the prices charged to consumers and could even make it profitable for producers to lower the supply.

Critics say it is a step in monetizing a basic human right as the practice could spread throughout global commodity markets and fuel the ongoing privatization of water sources. Water conflicts are already intensifying all over the planet.


When their contracts expire, futures holders will buy commodities or electricity at a predetermined price. In the meantime, they can sell the securities to others. An investor buys the said financial contract if they believe the good’s price at settlement day will be higher than they are obligated to pay. There are also futures tied to stock market indices, bonds or other products. In this case, it is a California water price index and futures owners will cash in or lose the difference between the contract and the current market price at a set date.


Scarcity draws in market makers

California is a major water consumer and it was faced with water scarcity even before the recent record wildfires. Climate change is leading to a rise in temperature almost everywhere in the world and making droughts worse. Water shortages are paired with population growth while pollution is exacerbating the lack of access to the liquid essential for life.

Banks and investment funds are conquering the water market while most people have no money to gamble with

Some market operators and investors say farmers and local authorities in California can use the first-ever water futures to control expenses. Still, it is questionable whether letting banks and investment funds more directly into the market would benefit those who have no money to gamble with.

Making money from others suffering

“What this represents is a cynical attempt at setting up what’s almost like a betting casino so some people can make money from others suffering… It’s the way in which capitalism makes profits from human misery,” Basav Sen from the Institute for Policy Studies told Earther.

Water usage rights are already being traded in California and other places. CME’s water futures are tied to an index of prices for immediate delivery that was introduced two years ago.

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