What is Future’s Market?

Photo Credit: roger4336 via photopin cc

Photo Credit: roger4336 via photopin cc

Future’s market is a stock market term used to describe a type of auction market where those involved buy and sell commodity and future contracts for delivery on a specified future date. The transactions in this auction are usually carried out by the participants yelling and waving hand motions around.

A commodity futures contract is an agreement to sell, buy, or trade a certain commodity at a specified future date. The price and amount of a commodity sold/traded/bought is fixed at the time of the agreement. Most of these contracts declare that the agreement be carried out by specified delivery date of the commodity, and some offer a cash settlement in lieu of the delivery of the commodity.  Contracts are also typically liquidated before the actual delivery date. A commodity futures option gives a buyer or seller the ability to buy or sell a futures contract by a certain date at a specified price, however, these futures contracts and options must be handled by firms that are registered by the CFTC.

However, futures market is not for everyone. Attendees of this market are addressed with the message to approach this market with caution, and the nature of the commodity trading is not suitable for individual “retail customers” and individual investors. Many individuals lose all of their money, or leave indebted to others. There can also be unsafe fraudulent activities that can also very well occur in futures market. The usual individuals participating in futures market auctions are those who with commercial or institutional commodities– producers or consumers. “Hedgers” also are considered participants of futures markets and trade futures to raise value in their own assets, as well as reduce the risk of financial decreases due to price deflation. Those who are not hedgers are “speculators” who seek profit from changes and alterations in price points in commodity and futures.

There are several ways for the CFTC and NFA to regulate futures markets, and they aim to attempt to benefit all participants, as well as protect them from any financial harm, however, it is essential to know your potential loss before participating in futures market. It is also encouraged to know and understand your financial goals and limitations, as well as your financial resources. It is also crucial to know and understand the many obligations you must commit to upon buying a futures contract, as well as market risks and past performance.

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