How everything began
Futures contracts were first used to trade rice in Japan in the 17th century. This was the first time that commodity futures trading as we know it today was used. It was a time when farmers and buyers got together and agreed on prices for the future. They did this by exchanging grain for money and agreeing on fair terms. For example, a dealer and a farmer might agree that the dealer will buy a tonne of rice from the farmer at the end of the next month for a certain price. This would be good for both the farmer and the buyer because the farmer would know how much he would get for his rice, and the buyer would know how much he needed to save up. Contracts like these became more and more common and popular, and they were even used as security for loans. If the buyer couldn't get the rice, he could sell the contract to another person. If the farmer couldn't deliver the goods, on the other hand, he could give the contract to another farmer. This was the start of futures trading as we know it now.
What Are Futures for Goods?
Today, most exchanges for trading futures on commodities are set up in the same way. The trading on the floor is done by people who are members of the exchange. Stock is ownership in a public company, and you can keep it for as long as you want. In contrast, commodity futures trading contracts have a set amount of time they can be held. In the past, people mostly used commodity futures trading to protect themselves from risks and price fluctuations or to profit from them. They didn't use it to buy the commodity itself. The idea behind a contract is that the good must be delivered within a set amount of time, or else the contract is null and void. The person who buys a commodity futures trading contract agrees to buy the item at a set price on a certain date. The person who sells the commodity futures trading contract agrees to sell the commodity at a certain price on a certain date. As time goes on, the price of the contract changes. This means that the trade can make or lose money. It should be noted, though, that the delivery doesn't happen very often. Most of the time, the contract is settled before its end date. The whole trade is based on the idea that there won't be any delivery, but that we can make money by guessing what the price of the underlying commodity will be in the future. Now, people all over the world trade in futures for goods.
What Are the Different Kinds of Goods?
On the international market, many different kinds of goods are bought and sold. These can mostly be put into the following groups:
- Valuable metals like gold, platinum, silver, etc.,
Metals like aluminium, copper, steel, etc.,
- Agricultural goods like Rice, Corn, Oils, Cotton, Wheat, etc.,
- Soft goods like cocoa, coffee, tea, sugar, and so on,
- Livestock like porkbellies, cattle, etc.,
- Energy goods such as crude oil, gasoline, natural gas, etc.
