The roots of today's market go back to the agricultural markets of the 1800s, when farmers started selling contracts to deliver their crops at a later date. This was done to predict what the market would need and keep supply and demand stable during bad crop years. Like goods and services, contracts were soon seen as valuable in their own right. For example, a grocery store chain might want to bid on this contract to make sure that they have fresh strawberries in the winter and not their competitors.
- The Market for the Future
There is a lot more than just food on the futures market right now. It is a market for all kinds of goods, including manufactured goods, agricultural products, and financial instruments like currencies and treasury bonds. In a futures contract, the price of a product at a certain delivery date is set.
Investing in the futures market
When an investor bets on the futures market, the goods themselves don't matter, and the investor doesn't expect to get the goods in real life. After all, the crop could be destroyed by bugs or by the weather. Because of this, the value of the contract itself changes every day based on how much the commodity is worth on the market.
- How deals are made
There is a buyer and a seller in a futures contract. The contract says how much the goods will cost and when they will be delivered. In a futures trade, you can never lose money because you will never pay more than the contract's original price. By locking in prices at a fixed rate, you make sure that you will still be able to get that price in the future, even if prices go up. On the other hand, if the price of the good goes down, the person who makes it will make money.
- How do you make money?
In the end, investors hope to make money from how the market changes every day. They buy long-term contracts and hope that the value of the commodities will go up on the market. So, they can buy cheap and sell for a profit. People who want to sell their goods can also offer short-term contracts if they think the price of their goods will go down.
- The Foreign Exchange Market
Currency trading is what FOREX is. So, it is very fluid. You will never be stuck with 200 boxes of strawberries that you have to sell in two weeks or they will go bad and you'll lose a lot of money. On the FOREX market, there is a lot less slippage than on the futures market. When you lose money, this is called "slippage."
- Never Closed
Most futures exchanges are only open for 7 hours a day, but FOREX is open 24 hours a day. This makes futures much more liquid, so they can be traded whenever a good chance comes up.
- No Government
Instead of paying commissions to brokers, traders pay a fee for each transaction they make. There is a lot of trading on the FOREX market, and transactions are almost always done right away. This reduces slippage and makes prices more stable. On the futures market, brokers often quote prices based on the price of the last trade, which may not be the price of your trade.
