Futures Trading: The Basics of Futures Markets
Hi welcome back in this segment we're going to talk about the basics of the futures market how the markets evolved the concept of a futures contract and market mechanics let's begin by discussing the futures contracts basically a futures contract is an agreement to make or take a delivery of a commodity or financial instrument at a fixed date in you guessed it the future so even though the delivery isn't going to happen until a later date the price of the transaction is determined right now today in the open market now the idea of futures trading is nothing new it actually started around 150 years ago as a way to manage agricultural production at that point most of the American Midwest was already settled in being farmed the problem was that planting and harvesting cycles created huge swings in prices so you have these ongoing boom and bust crises you have to remember back then they didn't have the physical and business infrastructures that we do today storage transportation insurance lending none of that was very advanced just wasn't around yet that's where futures contracts came in they offered their producers and the users of these agricultural Goods a way to buy and sell goods on the spot and then deferred delivery date farmers could sell crops before the harvest and deliver them afterwards well the bottom line is that trading futures had the exact effect the risk managers of the day hoped that they would pricing goods and financial instruments in an open market along with public dissemination of those prices allow businesses to transact and plan with greater efficiency the same principle applies today of course as time went on and people kept trading and becoming more familiar with futures the whole process became more efficient trading and pricing became easier because each contract with in in exchanges markets is identical to all the other contracts in that market on that exchange so what are some of the terms you need to know if you're going to trade futures quantity each contract represents a fixed and standard weight or measure for example in the wheat futures market a standard contract is 5,000 bushels a week or in crude oil the benchmark contract is the thousand barrels quality type or grade exactly what is the grade of the material that I'm 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 just remember that even if you don't have all the details pertaining to the weights grades or measures it's all standardized and all of that information is readily available on the exchange website delivery and payment terms this describes where and when delivery will be taken and under what payment terms for example in the case of gold there are delivery terms that specify the metals weight and purity in plain English the buyers and sellers indicate that they accept these terms by trading the contract okay let's move on futures contracts are exchange-traded instruments with no concept of over-the-counter or ecn transactions the contract terms are formulated by the exchange and then offered for trading on that same exchange so even though different exchanges may list certain contracts for the same commodity the important thing to remember is that every exchange is contract is going to be different now just because you buy a futures contract that doesn't mean you'll ever see delivery on what you purchased in fact relatively few futures contracts result in delivery or cash settlement why well that's because most futures are offset in the open market before they have a chance to mature but appear interested in risk management this allows you to add and remove futures positions at will if you're a speculator this allows you to take futures positions along with their risk and opportunities without ever having to take delivery of the underlying item in a nutshell offsetting is when you sell off a long position or cover a short position with the purchase once the position is offset the contracts disappear from the account and the appropriate debit or credit is applied okay so what can you trade well we usually group futures into four categories let's start at the beginning you can still trade the agricultural goods as we mentioned earlier you also have contracts for grains livestock and then you have what is commonly referred to as tropical goods tropical goods includes things like sugar and coffee if you're trading anything that can be grown or raised your trading agricultural or tropical futures then you have energy and metals so that includes crude oil copper natural gas and building materials then you have financial futures that includes foreign currencies interest rates and even stock indexes and yes you can even trade futures on individual stocks so that should give you a good overview thanks for watching check out the next video where we'll be talking about who trades futures futures exchanges and clearinghouses
Futures Contract, Cme Group, FUTURES, Futures Trading, Learn How To Trade Futures, Futures Exchange, Futures Market, OF, BASICS, THE, Cme, MARKETS, Cme Group Organization, Dan Gramza, Futures Contracts, yt:quality=high
Hi welcome back in this segment we're going to talk about the basics of the futures market how the markets evolved the concept of a futures contract and market mechanics let's begin by discussing the futures contracts basically a futures contract is an agreement to make or take a delivery of a commodity or financial instrument at a fixed date in you guessed it the future so even though the delivery isn't going to happen until a later date the price of the transaction is determined right now today in the open market now the idea of futures trading is nothing new it actually started around 150 years ago as a way to manage agricultural production at that point most of the American Midwest was already settled in being farmed the problem was that planting and harvesting cycles created huge swings in prices so you have these ongoing boom and bust crises you have to remember back then they didn't have the physical and business infrastructures that we do today storage transportation insurance lending none of that was very advanced just wasn't around yet that's where futures contracts came in they offered their producers and the users of these agricultural Goods a way to buy and sell goods on the spot and then deferred delivery date farmers could sell crops before the harvest and deliver them afterwards well the bottom line is that trading futures had the exact effect the risk managers of the day hoped that they would pricing goods and financial instruments in an open market along with public dissemination of those prices allow businesses to transact and plan with greater efficiency the same principle applies today of course as time went on and people kept trading and becoming more familiar with futures the whole process became more efficient trading and pricing became easier because each contract with in in exchanges markets is identical to all the other contracts in that market on that exchange so what are some of the terms you need to know if you're going to trade futures quantity each contract represents a fixed and standard weight or measure for example in the wheat futures market a standard contract is 5,000 bushels a week or in crude oil the benchmark contract is the thousand barrels quality type or grade exactly what is the grade of the material that I'm 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 just remember that even if you don't have all the details pertaining to the weights grades or measures it's all standardized and all of that information is readily available on the exchange website delivery and payment terms this describes where and when delivery will be taken and under what payment terms for example in the case of gold there are delivery terms that specify the metals weight and purity in plain English the buyers and sellers indicate that they accept these terms by trading the contract okay let's move on futures contracts are exchange-traded instruments with no concept of over-the-counter or ecn transactions the contract terms are formulated by the exchange and then offered for trading on that same exchange so even though different exchanges may list certain contracts for the same commodity the important thing to remember is that every exchange is contract is going to be different now just because you buy a futures contract that doesn't mean you'll ever see delivery on what you purchased in fact relatively few futures contracts result in delivery or cash settlement why well that's because most futures are offset in the open market before they have a chance to mature but appear interested in risk management this allows you to add and remove futures positions at will if you're a speculator this allows you to take futures positions along with their risk and opportunities without ever having to take delivery of the underlying item in a nutshell offsetting is when you sell off a long position or cover a short position with the purchase once the position is offset the contracts disappear from the account and the appropriate debit or credit is applied okay so what can you trade well we usually group futures into four categories let's start at the beginning you can still trade the agricultural goods as we mentioned earlier you also have contracts for grains livestock and then you have what is commonly referred to as tropical goods tropical goods includes things like sugar and coffee if you're trading anything that can be grown or raised your trading agricultural or tropical futures then you have energy and metals so that includes crude oil copper natural gas and building materials then you have financial futures that includes foreign currencies interest rates and even stock indexes and yes you can even trade futures on individual stocks so that should give you a good overview thanks for watching check out the next video where we'll be talking about who trades futures futures exchanges and clearinghousesFutures Contract, Cme Group, FUTURES, Futures Trading, Learn How To Trade Futures, Futures Exchange, Futures Market, OF, BASICS, THE, Cme, MARKETS, Cme Group Organization, Dan Gramza, Futures Contracts, yt:quality=high
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