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Futures

Futures

Futures is a financial derivative known as a forward contract. A futures contract obligates the seller to provide the product or other asset to the buyer on the agreed date. They are widely traded for commodities such as sugar, coffee, oil and wheat, as well as financial instruments such as stock market indexes, government bonds and foreign exchange. The earliest known futures contract is recorded by Aristotle in the history of Thales, ancient Greek philosopher. Assuming that future harvests will be especially generous. He signed a contract with the owners of the presses for processing olive oil in the region. In exchange for a small Deposit for a few months until harvest, and received the right to rent the presses at market prices during harvest. As it turned out, Thales was right about the harvest, the demand for oil press rose sharply, and he earned a lot of money.

 

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To the XII century, futures contracts were the main product of European trade fairs. While traveling with a large quantity of goods was laborious and dangerous. Honest sellers instead traveled with demonstration samples and sold futures to a larger number, which will be delivered later. By the 17th century these contracts was quite common to widely spread speculation. By the beginning of 1970-ies futures, and other derivatives has grown dramatically in volume. The pricing model developed by Fischer black and Myron with Scoulton, allowed investors and speculators to quickly evaluate futures and options on them. To meet the demand for new types of goods major exchanges expanded or opened across the globe, principally in Chicago, new York and London.

 

The features of the futures

 

Stock exchanges play a vital role in futures trading. Each contract is characterized by a number of factors, including the nature of the underlying asset, when it should be delivered, characteristics of the transaction currency, at what point the contract stops trading, and tick size, or minimum legal change in price. Standardizarea these factors in a wide range of futures contracts, the exchanges create large, predictable market.

 

Futures trading is not without a certain risk. As these contracts typically involve a high level of leverage, they were in the center of many market explosions. Barings Bank, Enron, are just some of the infamous names associated with financial catastrophes caused by futures. The most famous of these may well be Long Term Capital Management (LTCM). In the United States, these operations are regulated by the Commission commodity futures trading.

21.11.2019
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