Futures markets and strategies

This chapter discusses the futures markets and offers some strategies for arbitrageurs, hedgers, and speculators. A futures contract conveys the obligation to a trader to deliver or buy an asset at a predetermined price at a specific future date. Futures contracts were traditionally traded in an open outcry system, where traders and brokers, wearing colored jackets, shouted bids and offers in a trading pit. The daily movements of the price of a bushel of corn affect the potential profits and losses of the futures contract. Such daily computations of profits or losses on futures contracts are referred to as marking to market. Futures markets are highly competitive; people look to it to discover information about commodity prices based on today’s forces of demand and supply. Futures markets also serve to help investors, both individual and institutional, to spread unwanted risk.