Futures Trading
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Futures Trading
American futures trading - History
Predicting the future can be a notoriously tricky business. As mentioned earlier on, American futures trading contract is a type of derivative instrument, or financial contract, in which there will be two willing party agree to transact an underlying financial asset such as financial instruments or physical commodities for delivery in future at a particular price.
Buying a futures contract is basically agreeing to buy something that the seller has not yet produced for a fixed price. However, entering into a futures market does not necessarily mean that the buyer will be responsible for receiving or delivering large inventories of commodities. Primarily, the buyers and sellers in the futures market are with the objective to hedge risk or speculate rather than exchange physical goods. Futures market is not an activity of cash/spot market. This explains why futures are used as financial instruments by not only the producers and customers but also speculators who wish to gain from futures trading.
American Futures trading can be traced to as early as mid-nineteenth century. Before the North American futures market originated around 150 years ago, farmers would grow their crops and sell them in the market place. Without any indication of demand, supply often exceeds what is needed during a good harvest and unsold crops were left to rot. A good harvest doesn't necessarily mean favourable to the farmers. Conversely, when the commodity was out of season or has a poor harvest, the crops product became very expensive due to the shortage in supply but consistent demand.
In the mid-nineteenth century, central grain markets were established and central marketplace was created for farmers to trade their commodities for immediate delivery(spot trading) or for a forward delivery ( to trade the commodities at a certain date in the future at a pre-determined price) This concept saved many farmers the loss of crops and profits and to stabilize the supply and prices in the off-season. This has eventually become the forerunners to today's futures contract.
The future today is not tomorrow. A look back only 20 years ago demonstrates this perfectly. Today's futures trading market is a global marketplace for not only agricultural commodities such as corn, coffee bean and wheat, but ranges from crude oil, gold, currencies and financial instruments such as Treasury bonds, options and securities. Futures trading market is a diverse meeting place of exporters, importers, farmers, manufacturers and even speculators who want to gain from the movement in futures contract prices. Thanks to the powerful modern information technology, commodities prices are seen throughout the world, so a American village farmer can match a bid from a buyer in London!
American Futures contract can be traded at New York Board of Trade (NYBOT), renamed ICE Futures US in September 2007. IT is a physical commodity futures exchange located in New York city. IT originated in 1870 as the New York Cotton Exchange. In 1988, the New York Board of Trade became the parent company of both New York Cotton Exchange and the Coffee, Sugar and Cocoa Exchange and now function as division of the NYBOT. On September 14,2006, NYBOT agreed to become a unit of ICE and this transaction was completed on January 12, 2007. So for anyone who is interested in American futures trading, research and read up on ICE Futures is necessary
About the Author
I have been a part time lecturer and online article author in the field of finance for the past 3 years. Not only my in depth specialization in the financial analysis field, I also cover various type of exotic futures trading contract. You can also check out my latest website on futures trading contract which reviews and lists the benefit of american futures trading contract for the benefit of individual investors.
How does commodity/futures trading with orange juice work?
I am confused on the trading of orange juice, or frozen orange juice. I know speculators are there to just trade with no intention with taking delivery. However are large orange juice companies/manufacturers purchasing orange juice? I ask because i may work on a paper that revolves around the the commodity market bringing foods such as oj to areas like where i live (durango,co) year round. Where we have no citrus trees at all, but we constantly have shelves stocked with oj. So is the commodity market responsible for making this juice available year round?
If you have some free time, I recommend watching Wall Street Warriors (Its on Hulu.com). There's one individual in the show that trades on the orange juice floor in NYC.
To answer your question, yes. Representatives of large companies buy a spot on the floor and look to buy up tranches of orange juice at the lowest price. Let's say Hurricane Bobby is approaching the coast of Florida - a company will want to lock in orange juice now while prices are lower and before supply is cut.
I'm not really sure if any of this helps. I'll see if I can find some other resources for you.
Introduction to Commodity Futures Trading: The Basics