Futures Trading: The Basics of Futures Markets
Basically, a futures contract is an agreement made to make or take delivery of a commodity or financial instrument on a certain date, which '' you guessed it '' in the future, so, and even if delivery does not happen until a later date , the price of the transaction has already been determined on the date of the agreement in the open market.
This strange method of negotiation is nothing new, it began about 150 years ago as a way of managing agricultural production. At that time most of the American West was already occupied. The problem was that the planting and harvesting cycles created huge price swings. these continuous crises of ups and downs, knowing there was no infrastructure at the time, was all rustic, and it was from these crises that futures contracts arrived, offering their producers and users of these agricultural products a way to buy and sell goods and then postpone the delivery date. which would be in times of harvest.
And so it was developing, always made public actions and agreements between producers and buyer, prices publicly, and over time, was modernizing, and now allows companies to transact and plan more efficiently, the same principle applies today of course with the passage of time and people continued to negotiate and becoming familiar with the futures the whole process has become more efficient and prices have become easier because each contract with the stock markets is identical to all the other contracts in that market in that exchange so what are some of the terms you need to know if you are going to trade futures quantity each contract represents a fixed or standard or measured weight eg in the future wheat market a standard contract is 5,000 bushels per week or in crude oil the reference contract is the type or grade of quality of a thousand barrels exactly what is the degree of material I am buying or selling, for example, within the energy sector there are different categories of crude oil such as WTI or West Texas Intermediate and Brent, remember that even if you do not have all the details regarding weights, grades or Everything measures are standardized and all of this information is readily available on the exchange website and payment terms describe where and when delivery will be made and under which payment conditions, for example in the case of gold, there are terms of delivery that specify the weight and the weight of metals. purity in the plain English buyers and sellers indicate that they accept these terms by negotiating the contract well, we will tinker in futures contracts are instruments traded on the stock exchange without the concept of over-the-counter transactions or ECN transactions the terms of the contract are formulated by the exchange and then offered for trading in that same stock exchange, so that although different exchanges may list certain contracts for the same It is important to remember that all exchanges are contracts that will be different now only because you buy a futures contract that does not mean you will see the delivery of the which he bought. In fact, relatively few futures contracts result in cash delivery or settlement. well, this is because most futures are cleared in the open market before they have the chance to mature but seem interested in risk management, which allows you to add and remove future positions at ease if you are a speculator. your risk and opportunities without having to accept delivery of the underlying item in a nutshell is when you sell a bought position or cover a short position with the purchase, once the position is cleared, contracts disappear from the account and the debt or credit is applied ok then what you can trade well we generally group futures into four categories we will start at the beginning you can still trade the agricultural goods as we said earlier, you also have contracts for grain cattle and then you have what is commonly called tropical products. Tropical products include things like sugar and coffee if you are trading anything that can be grown or grown. then you have energy and metals, so it includes crude oil, copper natural gas and building materials, so you have financial futures that include foreign currency interest rates and even stock indices but you can trade futures in individual stocks so that you have a good overview thank you for watching check out the next video where we are going to talk about who is negotiating futures exchanges and clearing houses
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