Futures Trading on the Tulip Bubble

If supply exceeds demand in the commodity market, it is inevitable that some profiteers will hoard goods and raise prices. For example, there have been varying degrees of speculation in commodity markets such as cotton, copper, and tin. However, none of these commodity markets fluctuated as much as the tulip bubble. One of the reasons is related to the way the tulip market operates.

Before 1634, tulips, like other flowers, were grown and distributed directly by flower farmers, and the price fluctuations were not large. At the end of 1634, Dutch tulip merchants formed an organization similar to an industrial guild (College), which basically controlled the tulip trading market. This guild imposes a rule: any tulip purchase and sale must pay a fee to the guild. For every guilder concluded in a contract, 1/40 guilder was paid to the guild. For each contract, the maximum fee shall not exceed 3 guilders. Since these guilds usually traded tulips in taverns, the fees they charged were often called "wine money." As the demand for tulips increases, their prices rise. People are generally optimistic about the trading prospects of tulips and invest in tulip contracts. The harvest period for tulip bulbs is September every year. At the end of 1636, the Dutch tulip market not only bought and sold tulip bulbs that had been harvested, but also bought and sold bulbs that would be harvested in 1637 in advance. After tulip transactions were relatively centralized, information between buyers and sellers was able to circulate quickly, and transaction costs were greatly reduced. There are no clear rules in this futures market, and there are no specific restrictions on both buyers and sellers. Tulip contracts were easily bought and sold, changing hands several times in a short period of time. This makes it possible for merchants to play wildly in the futures market, buying and selling short. During the process of changing hands many times, the price of tulips has also been rising steadily.