May 21, 2009
Futures commodity trading basics
It’s a common sight on the nightly news- a wild crowd of people standing or running about, tightly grouped, who are shouting and waving fistfuls of paper. If you’ve never had any experience with the futures market, a day on the trading floor can seem confusing.
In this article, you’ll learn a bit about the trading of futures, so that you will know exactly what’s going on when you see it depicted somewhere.
Today’s futures trading floor is much different than it was when it first began quite a long time ago. They’d set up a stall on the roadside, and sit and wait for someone to buy something. Often, their crops would spoil because the farmers had no way to preserve or store them.
They’d set up a stall on the roadside, and sit and wait for someone to buy something. Often, crops would spoil because the farmers had no way to preserve or store them.
Many farmers would do the same thing, and as a result demand and prices would be driven lower. The opposite occurred in the spring time- supplies would decrease and demand would spike drastically. Until recently, the world didn’t have a method by which to shop for commodities at a competitive price. The advent of “forward contracts”, progenitors of the current futures markets, signaled a new era in trading.
Futures prices and the bid and asked price are continuously transmitted throughout the world electronically. Regardless of what geographic location the speculator or hedger is located in, he has the same access to price information as everyone else.
Farmers, banks, producers, and companies can very easily buy or sell- the only thing they need to do is to contact their broker. It could be one of your competitors who takes your trade, or maybe another speculator.
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