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AN INSIGHT
TO DAY TRADING

AN INTRODUCTION TO THE FUTURES MARKETS


The Mercantile Exchange in 2007. Credit: Chris Barron


The history of futures can be traced back to ancient civilizations, where farmers would enter into contracts to deliver a certain amount of a commodity at a future date. These contracts were used as a way to mitigate risk and ensure a stable price for both the buyer and the seller.


One of the earliest recorded examples of futures can be found in ancient Mesopotamia, where merchants used contracts to trade goods such as wheat and barley. In ancient Rome, farmers would enter into contracts to deliver a certain amount of grain at a future date and these contracts were used as a way to stabilise prices and ensure a reliable supply of grain.


Futures markets, also known as derivatives markets, are financial markets in which futures contracts are bought and sold. A futures contract is an agreement to buy or sell an asset at a predetermined price on a specific date in the future. Futures contracts are used to hedge risk, speculate on price movements, and to facilitate the trading and management of physical assets.


The modern futures market can be traced back to the 17th century, when the Dutch began trading futures contracts for commodities such as wheat and tulip bulbs. These contracts were used as a way to hedge against price fluctuations and reduce risk.


In the 19th century, futures contracts began to be traded on organised exchanges, such as the Chicago Board of Trade (CBOT), which was founded in 1848. The CBOT was the first exchange to trade futures contracts for agricultural commodities such as corn and wheat and it eventually expanded to include financial futures such as currency and interest rate contracts.


Today, futures contracts are an integral part of the global financial system and are regulated by various governmental and industry organizations, and are subject to rules and regulations designed to ensure fair and transparent trading.


Future contracts are traded on a variety of exchanges around the world, including the Chicago Mercantile Exchange (CME), New York Mercantile Exchange (NYMEX) or the London Metal Exchange (LME). They are used by a wide range of market participants, including producers, consumers, speculators and hedgers to trade a variety of commodities, including agricultural products, energy, metals as well as financial instruments, bonds and currencies.


One of the primary functions of futures markets is to provide a means for producers and users of a particular asset to hedge their price risk. For example, a farmer may sell a futures contract to lock in a price for their crop before it is even planted, providing a degree of price stability and allowing them to better plan and manage their operations. Similarly, a manufacturer may use futures contracts to lock in a price for the raw materials they need to produce their goods, helping to protect against unexpected price movements.


In addition to serving as a hedging tool, futures markets are also used by speculators who seek to profit from price movements in the underlying asset. Speculators may buy or sell futures contracts based on their expectations for future supply and demand conditions, economic indicators, and other factors that can influence prices. Futures markets are characterized by their use of leverage, which allows traders to control a large position in an asset with a relatively small amount of capital. This leverage can magnify both profits and losses, making futures markets suitable for experienced traders who are willing to take on higher levels of risk.


In summary, the history of futures can be traced back to ancient civilizations, where farmers used contracts to trade goods and reduce risk. Today, futures contracts are traded on organized exchanges and are used by a wide range of market participants to trade a variety of commodities and financial instruments – mainly for hedging and speculation purposes. Speculating in the futures markets can be particularly interesting for day traders. The UC futures trading course provides a comprehensive coaching forming well-educated and experienced traders.

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