Fundamentals of Futures Trading
May 8th, 2008
Jeff Wright asked:
‘Futures’ here means ‘futures contracts’ and futures trading refers to the act of trading futures contracts. Like stock trading, we have different floors (exchange) to trade each commodities. Commodities here can vary from gold, silver, S&P 500 index, livestock, wheat or cotton…and we can categorise them in two types: those need physical delivery and those require cash settlement. The contracts which require a physical delivery are known as commodity futures and include futures for agricultural commodities like rice, wheat, sugar, oats; energy commodities like natural gas, crude oil, heating oil and others such as animals, wood etc. Futures contract which require a cash settlement are known as financial futures and involve treasury notes, bonds, mutual funds etc.
Each commodity has different trade practices, especially ‘weather commodities’. Let’s have a look at an example from http://learnaboutfutures.com/leanhogscontent.php about lean hogs futures. Known as Lean Hog futures when first introduced at the CME, changed in 1997 to lean hog futures, this contract can be hedging tool for pork producers, importers, and exporters.)
Lean hogs are traded at CME (Chicago Mercantile Exchange). Trading hours is from 9:05 – 13:00 CT Electronic – Mon – Thurs 5pm to 4pm. Contract size is 40,000 lbs quoted in dollars and cents per hundredweight (cwt).
Unlike lean hogs, crude oil, a more popular commodity, is traded at NYMEX (New York Mercantile Exchange). Trading hours 9:00 am - 2:30 pm ET for open outcry and 6:00 pm to 5:15 pm for electronic trading. Contract size is 1,000 US barrels and is quoted in US dollars and cents per barrel.
Every futures trading require a futures trading broker or futures commission merchant (FCM). A futures trading broker is an intermediate between the public trader and the futures market, who deposit a margin from the web trader to the futures trading market to make the trader a recognized one. All the activies of the brokerage firms are monitored by a commission called Commodity Futures Trading Commission (CFTC).
KENTON
‘Futures’ here means ‘futures contracts’ and futures trading refers to the act of trading futures contracts. Like stock trading, we have different floors (exchange) to trade each commodities. Commodities here can vary from gold, silver, S&P 500 index, livestock, wheat or cotton…and we can categorise them in two types: those need physical delivery and those require cash settlement. The contracts which require a physical delivery are known as commodity futures and include futures for agricultural commodities like rice, wheat, sugar, oats; energy commodities like natural gas, crude oil, heating oil and others such as animals, wood etc. Futures contract which require a cash settlement are known as financial futures and involve treasury notes, bonds, mutual funds etc.
Each commodity has different trade practices, especially ‘weather commodities’. Let’s have a look at an example from http://learnaboutfutures.com/leanhogscontent.php about lean hogs futures. Known as Lean Hog futures when first introduced at the CME, changed in 1997 to lean hog futures, this contract can be hedging tool for pork producers, importers, and exporters.)
Lean hogs are traded at CME (Chicago Mercantile Exchange). Trading hours is from 9:05 – 13:00 CT Electronic – Mon – Thurs 5pm to 4pm. Contract size is 40,000 lbs quoted in dollars and cents per hundredweight (cwt).
Unlike lean hogs, crude oil, a more popular commodity, is traded at NYMEX (New York Mercantile Exchange). Trading hours 9:00 am - 2:30 pm ET for open outcry and 6:00 pm to 5:15 pm for electronic trading. Contract size is 1,000 US barrels and is quoted in US dollars and cents per barrel.
Every futures trading require a futures trading broker or futures commission merchant (FCM). A futures trading broker is an intermediate between the public trader and the futures market, who deposit a margin from the web trader to the futures trading market to make the trader a recognized one. All the activies of the brokerage firms are monitored by a commission called Commodity Futures Trading Commission (CFTC).
KENTON
