Forex Futures Trading

Futures - The Purpose, types, and the history of futures contracts

Futures are a mystery to most people, even some investors otherwise intelligent. Ironically, the future (or their predecessors, the contracts "forward") are among the oldest known financial instruments by man.

The Purpose of Futures

Futures are man's attempt to conquer fate. That may make things a bit dramatic, but the truth is that man is rarely comfortable with uncertainty, and the future allow people to eliminate or at least reduce, life's ambiguities.

For example, when a 19th century farmer selling December corn futures in May, he knew exactly what the price would get to deliver their crop, seven months early. This is the use of futures.

Commodity Futures

The most common type of future is still derived from raw materials. Corn, wheat, oats, soybeans, and sugar and crude oil, natural gas, live cattle and pork bellies are examples of commodity futures. A farmer may sell a futures contract in order to lock in your price, and then re-purchase the same contract at a later date, either by loss or gain, with the avoid making the delivery.

It is often impractical for a futures broker for anyone delivering or accepting large amounts of corn or cattle, so Most times, contracts are "closed" in this way. For people who have a real interest in the products (farmers in the sale side, the large users of commodities in the next purchase), this can be seen as a form of insurance.

For people who have no real interest in the products core, is this as speculation, or attempt to take advantage of predicting price movements of futures contracts.

Financial Futures

In addition to commodities, the future of the contracts of various financial instruments are also traded actively. No future for various indices securities, interest rates on federal funds, and almost everything imaginable. What is striking about these future is how they tend to be exact.

As explained in the book, The Wisdom of Crowds, the large number of participants in these markets, creating an almost eerie, the hive mentality that has an extraordinary ability to make things right. If the futures market anticipates a rise in the Federal Funds rate, then chances are, there is in the works.

A Brief History Future

Future contracts evolved from "futures contracts". These were handshake agreements between farmers of the 19th century and the great buyers of their crops or livestock. For example, a farmer might have decided in May 5000 to deliver bushels of grain in a mill in September, at a set price.

This reduce the backlog by flocks that created the imbalance in prices - the pens would be cheaper to buy grain when supplies were high, and then sell for a profit large end of the year, when supplies became scarce. The farmers and large buyers decided to create futures contracts in order to eliminate such middlemen.

Unfortunately, there were problems with the contracts. On the one hand, buyers and sellers had difficulty finding one another - unlike financial markets today. More importantly, buyers and sellers could deny each of the previous agreements, without much importance.

Future contracts, by contrast, are standardized, which makes finding buyers and sellers much easier. And they are regulated by the exchange, to enforce contracts, if necessary.

The Modern Futures Market

Today, futures are traded in markets the world's largest Financial. Some of them include the Chicago Board of Trade, Chicago Mercantile Exchange, ICE Futures, Euronext, the London Metal Exchange, the Commodity Exchange in Tokyo, the New York Board of Trade, and the New York Mercantile Exchange (NYMEX).

Today's most popular products are crude oil and natural gas, as well as various metals, like gold, copper, silver and platinum.

About the Author

William Smith the author provides much more financial information on many subjects as well as the secret to his success in the market along with 5 Free power stock picks emailed daily so grab your Free subscription on his website at
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