Futures Trading

Futures trading refer to all transactions that involve contracts between parties to purchase or sell merchandise of particular dates in the future. Futures are highly standardized with particular specifications for underlying asset or instrument, type of settlement, amount- units, as well as, currency and delivery. Basically when you are involved in futures trading, you are agreeing to purchase a particular product which the seller has not been able to produce for a set amount. People are attracted to futures trading because it enables them to hedge risks and think about the future performance of a product.

Futures trading involve differing futures contracts in relation to the various assets being traded. The individuals involve in futures trading are usually grouped into two- hedges and the spectators. Hedgers are those that purchase or sell in the futures market to secure future price of commodity intended to be sold at much later date. The speculators are those people who do not aim to minimize risks but to gain advantage amidst the risky nature of the future markets. The main objective of spectators is to gain profit from the various price changes. They do not want to own a commodity but enter the market through finding ways to get high profit by offsetting rising and the diminishing prices.

Aside from hedgers and speculators, regulatory bodies are also significant actors in futures trading. The US futures market under the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) regulates the futures market. It is also required that brokers and firms be registered with the CFTC to issue or buy or sell futures contracts. The CFTC has the power to investigate and punish through the Department of Justice those people who are proven to have violated the NFA’s business ethics and code of conduct.