ArticleZones.com » Finance » Currency-trading » Futures Market Exchanges And Futures Contracts
View PDF | Print View
Article By: JamesJ.Dehoiver
Total views: 4
Word Count: 696
Futures Market Exchanges And Futures Contracts
Here are the basics of futures contracts. When you are the seller of the contract you agree that you will supply the buyer a specfic amount of the item, it could be a physical commodity such as live cattle, coal or gas, or a financial instrument such as an index. The key point is that the price is set now but the item is delivered at a future date.
To make money trading futures you need to be a buyer of the contract if you think the value of the commodity is going to go up, and a seller of the contract if you think it will go down. The settlement takes place at a future date but you always have to buy and sell at todays prices.
If I buy (or sell) a futures contract today, I don't have to hold it until the contract expires, I can simply choose to sell it (or buy it) in the market at the prevailing price. Futures contracts are bought and sold in the regulated environment of a futures exchange, such as the Chicago Board of Trade (CBOT) in the U.S. and the London International Futures and Options Exchange (LIFFE) in the U.K.
The futures market was originally started to help people like farmers and merchants manage the risk of their products against the potential supply and demand of the market. In farming for example when there is a bumper crop of say corn the price can fall dramatically and hurt the farmer, but if they have already sold a contract at a certain price they can still get a fair price for their products.
The farmer and the merchant are often trading against each other, trying to get the best price at both ends of the trade. By using futures they can limit the risk of waiting until the crop is actually harvested when the supply and demand can change dramatically. It also helps them to be able to plan a head knowing what profits they can expect to obtain.
Normally the farmer and the merchant will form a contract early in the season long before harvest time for the price of the crop, this is in effect a futures contract. Both the farmer and the merchant are able to reduce their trading risks in this way.
Futures markets have evolved to include markets whose underlying asset is a financial asset, such as a bond or a portfolio of stocks. Most of the contracts traded can be classified as either commodity futures or financial futures, depending on whether the underlying asset is a commodity or a financial asset.
There are a number of major Futures Exchanges, The Chicago Board of Trade (CBOT) was established in 1848 to allow farmers and merchants to negotiate future prices for their produce. The main task of the exchange was to standardize the quantity and quality of the produce that was traded. CBOT now offers futures contracts on many different underlying assets, including corn, oats, soybeans, wheat, silver and Treasury bonds.
The Chicago Mercantile Exchange (CME) was created in 1919 and has managed a futures market in such things as pork bellies, live cattle and the SP500 index.
Another large futures exchange is the London International Futures and Options Exchange (LIFFE) which started in 1982. It has grown very fast since then and financial products like the FTSE100, the GILT and Short Sterling trade on that exchange.
In Germany the EUREX is a big exchange and is 100% electronic, it started out as the DTB in 1990 before electronic systems became popular, at the time open outcry pits systems were still in use by many exchanges.
The German Bund was a very heavily traded financial contract and one of the biggest markets on the LIFFE.
Trading Futures online is now very popular amongst traders because of the good leverage and liquidity available, however unless you learn how to trade correctly you can lose a lot of money fast. On the other hand well trained futures traders can make consistent daily profits by following a disciplined and well throughout trading strategy.
Article Source: ArticleZones.com
About the Author
James J. Dehoiver is an experianced futures trader and will teach you how to day trading futures as well as some delta neutral futures strategies, checkout his website now.
Comments
No comments posted.Add Comment
You do not have permission to comment. If you log in, you will be able to comment.More articles in this Category
1. Commodity Forex Online Trading - forex trading at its best2. Forex trading is for everyone.
3. Futures Trading - The Deadly Error That Brings Certain Doom
4. Futures Market Exchanges And Futures Contracts
5. Automated Forex Trading System - The Advantages