What Is a Futures Contract?
“There’s always a learning curve, where you’ve got to learn what your subject is all about”.”
– Brad Gilbert
History of Futures
- In 1710 the first organized exchange started in Osaka Japan known as Dojima Rice Exchange. It was the way for famers to trade rice.
- In 1848 over a century later. The Chicago Board of Trade (CBOT) was formed in becoming the first official commodity exchange trading forward contracts called future contracts for agriculture products.
- In 1930 CBOT pit trading started.
- In 1898 CME (Chicago Mercantile Exchange) Founded as a agricultural commodities exchange called Chicago Butter and Egg Board. • •In 1961 CME start trading its first future contract in frozen products.
- In 1992 the evolution started for electronic trading where CME lunch its Globex electronic trading platform.
- In 1997 CME develop and lunch electronic trading for E-Mini future contracts for S&P500.
- Today CME is the largest electronic exchange in the world after acquiring CBOT, NYMEX/COMEX/GLOBEX/NEX and others.
What is a Futures Contract?
A futures contract is a standardized financial contractual obligation for the purchase and sale of assets such as commodities or financial instruments on a future exchange at a predetermined price at a specific future date.
Contract Criteria Include Items Like:
- Predefined quality and quantity of the underlying asset
- Expiration month
- Unit pricing of the asset and minimum price fluctuation (Tick size)
- Cash settlement or physical delivery (Location)
Futures is derivative Instrument, meaning its value is derived from an underlying asset or group of assets like – Stocks/Bonds/Commodities/Currencies…