Futures trading involve the trading of futures contracts, which deal with underlying products. The futures contracts provide the holder power to buy the underlying commodity at a specific time for a specific price. This provides the holder the opportunity to trade the product irrespective of the market price at that time. Like stocks trading, futures trading are done in definite centralized markets like NYMEX, S&P, CME, Globex and CBOT.

The process of futures trading involves 2 steps as long and short. In market terms buying of futures is known as ‘going long’ and selling of them is known as ‘going short’. We can classify the futures contracts into two main categories as money or financial futures and commodity futures. Financial futures are futures contracts which end in a cash settlement (example: futures for bonds, mutual funds, treasury notes etc.). Commodity futures can be of many types as those for agricultural commodities (like wheat, corn, oats, rice etc.), those for metals and stones (like gold, silver, etc.), those for energy commodities (like crude oil, natural gas, heating oil etc.) and those for animals and other natural resources.

The traders who trade futures are of two types as Hedgers and Speculators. Hedgers are individuals/companies who issue the futures to avoid a potential loss at the time of real product release in to market. Speculators are real traders that you can see around. They trade futures for profit or to buy underlying product. Speculators include day traders, swing traders, position traders and arbitrages. Arbitrages need special attention, as they trade same futures at different futures market for small price differences. That’s why arbitrages are responsible for price stability of individual features.

Futures trading brokers provides traders the support, account and often the systems to trade futures. Actually they are the mediators between the futures market and the public traders, who collect specific margins from traders and deposits to the market to make the trader a qualified one. They are responsible for maintaining a trader’s trading records such as margin deposits, money balances, open futures and transacted futures. In return of these services the broker charges a fee, which mainly depends on the trader’s trading activity and trading volume. Brokers offering futures trading account are also of two types as full service brokers and discount brokers.

Recently there was a marked increase in the number of active futures traders. This may be of many reasons such as the simplicity in trading, liquidity present in the market, the comparative stability of the futures market, price stability of individual features, easy in owning underlying product, low commission charges, easy to get off from the trades, availability of mini and standard features, ability to trade from home, and the availability of a variety of futures. In US the whole process in monitored by the federal agency Commodity Futures Trading Commission (CFTC).