It may be understood that, in futures
trading, a buyer and seller of the agreement are necessary for this financial
instrument to go into effect. Just the same, it may not be apparent as to the
avenue through which a transaction like this occurs.
As the term “futures trading”
implies, there is a market for these commodities-based contracts, or rather,
several markets. Such an entity that provides for commerce in futures is known
simply as a futures exchange and behaves much like other financial
exchanges in the United States and abroad, although with its own peculiarities.
Some notes about what to look for in a futures exchange and where the
most prominent ones may be found:
Futures trading is based on speculation
about the future value of certain classes of goods and other securities. By
proxy, it is a futures exchange which sets the values of futures.
It should be noted that futures
trading is very risky. This owes to the nature of leverage. In the futures
exchange game, an initial deposit made to secure the rights to futures is
only a fraction of the total worth of the underlying
asset. In the event the commodity grows in value,
the holder may well reap the rewards. That said, if that same commodity plummets
in value or even the rate of the contract itself worsens according to a futures
index, this could mean significant losses for the holder. Futures trading, in
short, is a gamble.
For those individuals who are serious about
trying their luck at a futures exchange, there are some prominent names of
which to be aware. One of the biggest exchanges in the United States is a
conglomerate of previously separated markets now known as the CME Group, based
in Chicago (and named after its chief component, the Chicago Mercantile
Exchange). Other notable futures exchanges in America are more specialized in
their application, such as the Minneapolis Grain Exchange and the Chicago
In addition, foreign nations are also highly
invested in futures trading. Some major players on this front are the
International Securities Exchange and, by sheer volume of trade, the National Stock
Exchange of India.