Futures commodity trading basics

Many people see pictures of the large crowd of traders standing in a crowd yelling and signaling with their hands, holding pieces of paper, and writing frantically. To the outsider, it looks like chaos. But do you really think that there’s chaos going on in the world’s futures pits?

However, those who work in that environment know exactly what’s going on, and they’re very organized. In this article, you’ll learn a bit about the trading of futures, so that you will know how the process works.

Today’s futures trading floor is much different than it was when it first began quite a long time ago. Back before there was an actual futures market, those who grew fruit, grain and vegetables would cart their crops to a major town or city and try to sell them.

Because a lot of farmers had the same idea, at the same time, demand and the average price would be a lot lower. Demand would be lacking, and supply would be too high. Conversely, in the spring demand would be raised, and commodities and crops would be in very low supply.

Initially, the first organized and central marketplaces were created to provide spot prices for immediate delivery. Shortly thereafter, forward contracts were also established. These ‘forwards’ were forerunners to the present day futures contract.

It doesn’t really matter where the buyer or seller is, they will get the same general information that everybody else has. Farmers, banks, producers, and companies can very easily buy or sell- the only thing they need to do is to contact their broker.

Farmers, bankers, manufacturers, corporations, all have equal access. All they have to do is call their broker and arrange for the purchase or sale of a futures contract. The person who takes the opposite side of your trade may be a competitor who has a different outlook on the future price, it may be a floor broker, or it could be a speculator.