Futures Market

The chaotic shouting and signaling of bids and asks on the trading floor of a futures exchange undeniably convey an impression of chaos. The reality however, is that chaos is what the commodity futures markets replaced. Prior to the establishment of central grain markets in the mid-nineteenth century, the nations farmers carted their newly harvested crops over plank roads to major population and transportation centers each fall in search of buyers. The seasonal glut drove prices to giveaways and to throwaway purport ions as grain rotted in the streets. Come spring, shortages frequently developed and foods made from corn and wheat became barely affordable luxuries. Throughout the year, it was each buyer and neither seller for himself with neither a place nor a mechanism for organized, competitive bidding. The first central markets were formed to meet that need. Eventually, contracts were entered into for " forward " as well as for spot, immediate, delivery. These forwards were the forerunners of present day futures contracts

Spurred by the need to manage price risk and interest rate risks that exist in virtually every type of modern business, futures markets have become major financial markets. Participants include mortgage bankers as well as farmers, bond dealers as well as grain merchants, and multinational corporations as well as food processors and individual speculators.

Futures prices arrived at through competitive bidding are immediately and continuously relayed around the world by wire and satellite. A farmer in Nebraska, a merchant in Amsterdam, an importer in Tokyo and a speculator in Ohio thereby have simultaneous access to the latest market-derived price quotations. And, should they choose, they can establish a price level for future delivery, or for speculative purposes buy or sell the appropriate contracts. Regulated commodities markets are the cornertone of the world's most orderly and intensely competitive market systems. When trading in commodity contracts, wether for speculation or for a risk management strategy, the orders to buy or sell would be communicated by phone from the commodity brokerage office you use and then to the trading pit or ring for execution by a floor broker. If you are a buyer, the broker will seek a seller at the lowest available price. If you are a seller, the broker will seek a buyer at the highest available price.

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