PostHeaderIcon A Look Into Futures Trading

There are many types of investment options available for traders. One of them is dealing in futures. Futures trading is a type of investment that involves determining or speculating on a price of a certain commodity whether it goes up or down in the future.

Trading in Commodities

Futures trading usually involves trading in a number of various commodities. It can extend into trading in grains, cattle , lumber, precious metals, steel, and even currency. These commodities are being traded in markets all over the world. Futures trading usually involves mainly speculative "paper"investing. This means that the traders or investors do not actually hold any physical commodity. What they hold is a piece of paper that is known as a futures contract.

Futures Contract

A futures contract is a standardized contract that is being traded in a futures exchange. It is a contract that states either buying or selling of a standardized quantity of a certain commodity at a future date and at a specified price. A futures contract gives the holder of the contract the obligation to take or deliver the commodities as specified in the futures contract.

The futures contract is distinguished from an options contract in that option grants its holder the right but not the obligation to establish a position. A futures contract on the other hand holds it owner with the obligation to fulfill the conditions of the contract on a specified date. All futures contracts are standardized and hold specified quantity and quality of a certain commodity.


Before future trading came into existence, commodity producers such as farmers and cattle ranchers are always at the mercy of the dealer come harvest time. Farmers usually have to sell their produce at a small time frame in order not to sell a lesser quality product. And the practice of buying the products has to be legal and so contracts were made specifying a certain amount of produce at a certain quality to be delivered at a specified time.

Later on, farmers started providing or selling such contracts for future produce to be delivered at a certain time aside from the usual on the spot selling. Dealers also started buying these contracts to ensure that they get a certain commodity needed at a certain period.

This allows the farmer to be assured of getting produce sold at a specified price protected from the ups and downs of the market. The same way that a dealer also gets the commodity that he wants in the future with the price already specified and known. This gave birth to futures trading.



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