For years, investors and traders have hedged and speculated on the future prices of a surprisingly varied array of financial products. One can place bets on the future prices of corn and cattle, hogs and hurricanes, coffee and currency, to name a few, by trading futures and options contracts.


IN PICTURES: 6 Ways To Make Better Options Trades

What Are Futures?
The concept of trading futures originated with agriculture: farmers sell crops that have yet to be harvested, or in some cases, planted, with the expectation that the crop will be ready to harvest by a certain date (contract expiration). The money that the farmer earns by selling the contracts helps ensure that the he will achieve a certain price for his efforts, and provides cash flow with which he can continue farming. Even if one doesn't understand the details regarding futures and options, one can see the potential benefit to the farmer and other market participants.

Betting On Artists
A 23-year old in London thinks that artists should be able to buffer their income in the same way. Tom Saunders is offering an "emerging artist derivative contract", a legally binding financial agreement said to be a work of art in itself. The intention of the contract is to provide purchasers the option, but not the obligation (just like a normal options contract), to purchase one of Saunders' works in the future - in 10 years to be precise.

Investors will pay Saunders £2,000 now for the option to purchase a future work for £1 in 10 years time. The idea behind the contract is that many artists do not mature or gain notoriety for many years - time often spent as a starving artist, or time spent compromising artistry for a paycheck. The money Saunders makes upfront selling the derivatives contract can cushion him financially while he is able to concentrate on his art, without feeling rushed to create. The resulting art, theoretically, should be better, more developed and more mature, than art that was produced out of financial necessity. (Painting isn't the only artform that offers futures. Find out more in Make Money On The Movies.)

The Purses Behind the Art
Great artists and aspiring artists have for centuries sought out pre-payment for their works to keep them fed and clothed while creating. Patrons of art, such as the Medici family in Florence, were famed financial supporters of some of the world's finest artists including Michelangelo and Botticelli. Without their patronage, and the fierce competition that their support forced, these greats may not have achieved such lasting notoriety.

The list of modern day patrons of the arts includes Bill Gates, founder of Microsoft, and music mogul David Geffen. True, much of the modern day support allotted to the arts comes in the form of paying vast amounts of money for works created hundreds of years ago. While this does not provide financial support for today's starving artists, it does keep art in the minds and hearts of a society that is frequently too busy and too distracted to appreciate it. The greatness of the art is subjective; however, the price a piece fetches is objective and can define the value of art - at least in terms of money.

Valuing Art
Therefore, it is true that as an investment, art can make sense. The art market is alive and kicking. With the markets cruising up and down, and gains being erased just as quickly as they are won, great art often stands still and holds its value. That is not to say that many of today's artists will emerge on top of the game and become one of the elite few who win hearts and set records. But a few will. It's an interesting idea to be able to examine an artist's work today, and predict if he or she has the talent to become one of the greats. (You don't just have to invest in art futures, you can also invest in art funds. Learn more in Fine Art Funds: A Beautiful Investment.)

The Bottom Line
The emerging artist derivatives contract, while is unlikely to become a mainstream, organized financial instrument, provides today's patrons an interesting way to support the arts, or, in this case, the future of an artist. Tom Saunders, whose exhibition will soon be on display at the murmurArt gallery (www.murmurart.com) in London, is a conceptual artist, which means his art can take a long time to be "born" and to develop. Finding financial support is crucial for artists like Saunders who need time to create without the pressures of deadlines and commercialism.

The art world might expect to see more of these emerging artist derivative contracts as a means of providing necessary patronage, as well as a unique investment instrument. Any of today's emerging artists could become a famously good investment. (To learn more, see Fine Art Can Be A Fine Investment.)

Catch up on the latest financial news in Water Cooler Finance: Crying Over Spilled Oil, And Buffett Goes To Court.

Related Articles
  1. Mutual Funds & ETFs

    3 AllianceBernstein Funds that Are Rated 5 Stars by Morningstar

    Discover the top three mutual funds administered and managed by AllianceBernstein that have received five-star overall ratings from Morningstar.
  2. Retirement

    Is it Safe for Retirees to Invest in Technology?

    Tech stocks are volatile creatures, but there are ways even risk-adverse retirees can reap rewards from them. Here are some strategies.
  3. Mutual Funds & ETFs

    Is Morningstar’s Star System An Effective Ranking Tool? (MORN)

    Learn why Morningstar's star rating system is not always a great predictor of future performance, and why investors should not pick funds on star ratings alone.
  4. Stock Analysis

    The Top 5 Oil and Gas Stocks for 2016 (XOM, BP)

    Read detailed analyses of the top five oil and gas stocks, and learn why they may be poised to rise in 2016 after a dismal 2015.
  5. Retirement

    Roth IRAs Tutorial

    This comprehensive guide goes through what a Roth IRA is and how to set one up, contribute to it and withdraw from it.
  6. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  7. Mutual Funds & ETFs

    3 PIMCO Funds Rated 5 Stars by Morningstar

    Learn about three fixed income mutual funds managed by Pacific Investment Management Company (PIMCO) that have received five-star overall ratings from Morningstar.
  8. Mutual Funds & ETFs

    3 Invesco Funds Rated 5 Stars by Morningstar

    Learn about the top three mutual funds administered and managed by Invesco Ltd. that have received a five-star overall rating from Morningstar.
  9. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  10. Personal Finance

    Zika Virus: Latest Advice on Staying Safe

    Zika has hit the U.S. Here’s the most recent update on what’s known about the virus, how it spreads, who’s at highest risk and how to avoid it.
RELATED FAQS
  1. What is a derivative?

    A derivative is a contract between two or more parties whose value is based on an agreed-upon underlying financial asset, ... Read Full Answer >>
  2. What is after-hours trading? Am I able to trade at this time?

    After-hours trading (AHT) refers to the buying and selling of securities on major exchanges outside of specified regular ... Read Full Answer >>
  3. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  4. How do mutual funds work in India?

    Mutual funds in India work in much the same way as mutual funds in the United States. Like their American counterparts, Indian ... Read Full Answer >>
  5. Are UTMA accounts escheatable?

    Like most financial assets held by institutions such as banks and investment firms, UTMA accounts can be escheated by state ... Read Full Answer >>
  6. What are the dormancy and escheatment rules for stock accounts?

    While the specific dormancy and escheatment rules for stock accounts vary by state, all states provide for the escheatment ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center