Futures

Futures contracts are traded on a wide array of assets including securities, commodities, currencies, indexes and interest rates. Futures contracts are generally contracts between two individuals or parties, to buy or sell a specified asset and quantity for a set price agreed upon.  The asset traded in the contract can be both a tangible and a non-tangible asset. 

Futures contracts require the fulfilment of the contract on the specified delivery date.  Commodity futures contracts include meat and livestock, in addition to grains.  Delivery requires delivery of the underlying asset in the futures contract to the buyer.  In contracts which are cash-settled, the trader who had a losing position would transfer cash to the other trading partner.

The buyer of the futures contract is “long” the contract, and the seller of the futures contract is “short” the contract.

Futures trading began with commodity trading of silk and rice.  In North America, trading started in the middle of the 19th century with grains. 

Futures contracts are traded on numerous exchanges in the Chicago Board Options Exchange, Euronext, Eurex, and the Tokyo Commodity Exchange and many others.

Futures trading can be extremely risky, however, in certain cases futures strategies can be implemented which in fact reduce investor risk.  A thorough understanding of futures trading is needed by individuals wishing to trade futures.  Traders are required to hold margin accounts with investment brokerage houses.  It is important to note that not advisors are allowed to trade futures.  Certain courses and licensing is required to be able to trade futures contracts and option contracts. 

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