It’s a common sight on the nightly news- a wild crowd of people standing or running about, tightly grouped, who are shouting and waving fistfuls of paper. If you’ve never had any experience with the futures market, a day on the trading floor can seem confusing.
In this article, you’ll learn a bit about the trading of futures, so that you will know exactly what’s going on when you see it depicted somewhere.
Today’s futures trading floor is much different than it was when it first began quite a long time ago. They’d set up a stall on the roadside, and sit and wait for someone to buy something. Often, their crops would spoil because the farmers had no way to preserve or store them.
Because a lot of farmers had the same idea, at the same time, demand and the average price would be a lot lower. Demand would be lacking, and supply would be too high. Conversely, in the spring demand would be raised, and commodities and crops would be in very low supply.
Initially, the first organized and central marketplaces were created to provide spot prices for immediate delivery. Shortly thereafter, forward contracts were also established. These ‘forwards’ were forerunners to the present day futures contract.
Futures prices and the bid and asked price are continuously transmitted throughout the world electronically. Regardless of what geographic location the speculator or hedger is located in, he has the same access to price information as everyone else.
Farmers, banks, producers, and companies can very easily buy or sell- the only thing they need to do is to contact their broker. It could be one of your competitors who takes your trade, or maybe another speculator.
