Involving in futures trading can add up an investor’s financial portfolio. This kind of trading can be lucrative if proper understanding of the market, particularly futures market and commodity market is employed. Extensive research and intelligent decision would also be required to be able to profit from trading. However, just like in any other financial market, this financial trading that involves future contracts can also be risky. As much as an investor may not like it, the likelihood of not gaining much or getting beaten exists.

In futures trading, investors and speculators buy and sell future contracts to profit. Their contribution in the participation of this kind of trading has helped in the liquidity of the futures market. These investors may be financial firms and commercial companies. Governments can also participate in the futures market.

Futures trading is also a trading game of hedgers, which are mostly farming cooperatives. Farmers and producers of raw and primary products are others personas that partake in the trading of futures contracts.

Futures trading involves the exchange of futures or futures contracts. Futures are standardized, negotiable and transferable contracts with an agreement to make or acquire the delivery at a defined price on a specified future date. Commodity and derivatives are traded on futures exchange.

A futures exchange is the marketplace of buyers and sellers of futures contracts. These contracts indicate the quantities of the financial instruments or commodities to be delivered on an agreed future period at an agreed amount.

Futures contracts can provide agricultural producers with the advantage from fluctuating prices of crops in the world markets. For instance, a farmer buying a futures contract on a certain crop, say corn, from the futures market and subsequently selling the contract to a willing buyer can give the farmer the benefit from losing in the event of the low price of corn after certain periods from the date of

contract and during the date of delivery. The risk of low prices of a certain commodity can be offset if futures contract on corn is sold to a willing buyer. On the part of the buyer, there can be a benefit from the rising price of a certain commodity.

In the case of investors and speculators who are not practical users of commodities, they trade futures to compete and gain. Unlike farmers and other producers of commodities who find the need to buy and sell futures for certain advantages during the delivery of certain commodities, investors engage in futures trading to gain money aside from his intention to diversify or increase their investment portfolios.

Futures trading can happen in an environment where there are brokers, investors, buyers and sellers and regulators. The trading of futures occurs primarily in futures exchanges.

Futures exchanges are clearing houses of futures trading. The Eurex is the largest futures exchange in the world in volume. It also handles options. It deals mainly with European-based derivatives. SWX Group and Deutsche Borse AG run the European-based futures exchange and facilitate the futures trading of European financial instruments such as derivatives.

Eurex is an impressive fully electronic exchange of futures and derivates and is regarded as the best electronic exchange in the world. It has over 400 participants in different countries. The electronic way in conducting futures trading helps in standardizing and decentralizing the access of Eurex’s markets.

The first futures exchange, Chicago Board of Trade, was established in Chicago in 1848. One of the oldest futures exchanges in the world is Chicago Mercantile Exchange or CME. CME is the world’s second-largest futures exchange and is US’ largest exchange for futures, commodities and derivatives.

Futures trading can be an exciting moneymaking undertaking. However, trading in futures is not for everyone. Similar to forex trading, trading in futures is a zero-sum game. There is a always a winner and a loser in a transaction.

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