What are Futures
What are futures. Futures contracts and forward contracts – How do you use them to make money?
Futures have traditionally been a way to protect against volatile price moves in physical grain products in the United States. Futures trading subsequently expanded to other basic commodities such as grains, meats, metals, coffee, cocoa, sugar, cotton, petroleum, lumber.
Definition of Futures
Futures are a type of financial derivative. Sometimes called a forward contract, a futures contract is an obligation to deliver a specific commodity or another underlying asset at a specified date in the future.
Futures can be used to speculate on a wide variety of financial variables, from interest rates to currency exchange rates to market indices.
Chicago Futures Exchange
The Chicago Futures Exchange stood at the vanguard of the development of the futures market in America. The very first futures market opened in 1868.
Why Chicago? The Chicago Futures Exchange was particularly important because of Chicago’s geographical location. Chicago is strategically situated as a shipping center and thus a natural site for grain trading.
S&P 500 Futures
S&P 500 Futures are among the most popularly traded futures in the market. Since you only need to put up 5 percent of the value of the contract, you can make use of the enormous power of leverage. However, leverage is a sharp sword that cuts both ways – you will take heavy losses quickly if you bet in the wrong direction.
Single Stock Futures Market
The Single Stock Futures Market trades single stock futures, which are what are futures contracts with the underlying asset being one stock. The largest Single Stock Futures market in the world is that in South Africa, where 700,000 contracts are traded daily.