On the Mechanism of the Futures Market: a Formulation and Some Analytical Properties M.S. RADJEF ∗ and F. LAIB † Abstract This paper deals with the internal structure of the futures market’s plat- form. A mathematical formulation is proposed to show the links between market components like transactional prices an quantities and traders’ states like average price, potential and realized wealths. Some mathematical prop- erties of these parameters are stated and demonstrated. The time increment of the open interest and market average price are analyzed. Key words : futures market platform, mathematical properties, traders’ positions, open interest, market average price. 1 Introduction The majority of studies on futures markets were conducted from a stochastic per- spective where time series were analyzed in order to discover empirical relationships between market phenomena (Chan and Young, 2006; Mandelbrot and Taylor, 1967). In parallel, market analysts and traders use extensively technical analysis and fun- damental analysis to forecast price moves and monitor market trends (CBOT, 1998; Murphy, 1999). In the same optic, Shelton (1997) has suggested an authentic ap- proach based on a game theory model where a rational player (a trader) is playing a game against Nature (the market). He defined the probability triangle showing to the trader the right strategy to play depending on his risk level and the market mood. However, to respond to more conceptual questions on futures markets, other kind of investigations are needed. For this purpose, Arthur et al. (1996) developed a genetic approach designed to generate the price of a stock financial asset based on heterogeneous agents with different expectations and different strategies. Their approach allowed to understand the band wagon effect and the interaction between technical trading and fundamental trading. Howard (1999) constructed an analytical * LAMOS laboratory, Department of Operational Research, University of Bejaia, Algeria. Email: ms.radjef@lamos.org. † Market Analysis Services, CEVITAL Group, Garidi II, Kouba, Algiers, Algeria. Email: fodil.laib@cevital.com (corresponding author). 1