A Trader’s Guide to Futures Thought Leadership with a Global Perspective

A Trader’s Guide to Futures Thought Leadership with a Global Perspective

SECTION 1

What Are Futures?

In the United States, trading futures began in the mid-19th century with the
establishment of central grain markets where farmers could sell their products
either for immediate delivery, also called the spot or cash market, or for forward
delivery. These forward contracts were private contracts between buyers and
sellers and became the forerunner of today’s exchange-traded futures contracts.
Both forward contracts and futures contracts are legal agreements to buy or sell
an asset on a specific date or during a specific month. Where forward contracts
are negotiated directly between a buyer and a seller and settlement terms may
vary from contract to contract, a futures contract is facilitated through a futures
exchange and is standardized according to quality, quantity, delivery time and
place. The only remaining variable is price, which is discovered through an
auction-like process that occurs on the Exchange trading floor or via CME Globex,
CME Group’s electronic trading platform. 

Although trading began with floor trading of traditional agricultural commodities such as grains and livestock,
exchange-traded futures have expanded to include metals, energy, currencies, equity indexes and interest rate
products, all of which are also traded electronically. 

!Definition

FUTURES

Standardized contracts for the purchase
and sale of financial instruments or physical
commodities for future delivery on a regulated
commodity futures exchange.
forward contract
A private, cash-market agreement between
a buyer and seller for the future delivery of a
commodity, at an agreed upon price. In contrast
to futures contracts, forward contracts are not
standardized and are non-transferable.
spot market
A market where cash transactions for the
physical or actual commodity occur.
CME Globex
The first global electronic trading system for
futures and options has evolved to become the
world’s premier marketplace for derivatives
trading. With continual enhancements, the
platform has effectively enabled CME Group,
already known for innovation, to transform itself
into a leading high-tech, global financial
derivatives exchange.

A Trader’s Guide to Futures Thought Leadership with a Global Perspective