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Posts Tagged ‘futures market’

To effectively understand futures trading, it may be important to understand the way that the commodities and futures market evolved. Originally, over a hundred and sixty years ago, commodities producers and purchasers developed a method to mutually protect their interest with the establishment of “forward contracts.” In the forward contract the commodity supplier (say a wheat farmer) would agree to deliver a certain amount of his commodity by a certain date and at a certain price to the commodity purchaser (say a breakfast cereal manufacturer). These contracts would protect both parties from fluctuations in the price of the commodity. The seller was protected from the price dropping too low and the buyer was protected from the price rising too high.
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