futures trading course

Futures traders.

Traditionally, futures traders are either hedgers or speculators. Hedgers have an interest in the underlying commodity. They seek to hedge risk, of price changes. Speculators seek to profit by predicting market moves. They buy a commodity "on paper", for which they have no practical use. futures trading course

Hedgers include producers, and consumers, of a commodity.

For example, in futures markets, farmers sell futures. It is for the crops, and livestock, they produce, to guarantee a certain price. Thus, for them, planning for the future is more predictable.

Similarly, livestock producers purchase futures to cover their feed costs. This sets a fixed cost for feed. In financial markets, there are "producers" of interest rate swaps, or equity derivative products. They use financial futures, or equity index futures, to reduce or remove the risk on the swap. futures trading course

The social utility, of futures markets, is considered to come from the transfer of risk. It increases the liquidity between traders, with different risk and time preferences. For example, it is transferred from a hedger to a speculator.

Futures contracts and exchanges.

There are many kinds of futures contract. Each reflects the different kinds of tradeable assets, of which they are derivatives. These are futures markets:

Foreign exchange market
Money market
Bond market
Equity index market
Base metals market
Precious metals market
Energy market
Soft Commodities market

Originally, futures traded only commodities. The market was dominated by the Chicago Mercantile Exchange (CME). However, after introduction in the 1970s, contracts on financial instruments became hugely successful.

They quickly overtook commodities futures, in trading volume and global accessibility to the markets. This led to the introduction of many new futures exchanges, across the world. This includes LIFFE, EUREX and TIFFE. futures trading course

London International Financial Futures Exchange (LIFFE)
London Commodity Exchange - 'softs', grains and meats. Inactive market in Baltic Exchange shipping.
London Metal Exchange - metals, mainly copper, aluminium, lead, zinc, nickel and tin.
International Petroleum Exchange - energy including crude oil, heating oil, natural gas and unleaded gas.
Chicago Board of Trade (CBOT) -- financials (bonds), traditional commodities: maize, oats, rough rice, soybeans, soybean meal, soybean oil, wheat,
Chicago Mercantile Exchange -- financial futures, traditional commodities: lumber, live cattle, feeder cattle, boneless beef, boneless beef trimmings, lean hogs, frozen pork bellies, fresh pork bellies, Basic Formula Price milk, butter,
New York Board of Trade - Softs : cocoa, coffee, cotton, orange juice, sugar
New York Mercantile Exchange - Energy and metals: crude oil, gasoline, heating oil, natural gas, coal, propane, gold, silver, platinum, copper, aluminum and palladium

futures trading course.

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