Agribusiness Library

Lesson 060061: The Futures Market part 1

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 Objectives

1. Describe the futures market, and examine the

advantages and disadvantages of futures trading.
2. Identify the items specified on futures contracts,
and determine the contract sizes of various
commodities.

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 Terms

• contract specifications
• futures contract
• futures market
• stock markets

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 What are futures markets?
What are the advantages and
disadvantages of futures trading?
A futures market is a centralized market where
buyers and sellers trade contracts of commodities.
They are legally binding agreements to buy or sell
something in the future. Nearly all futures
contracts do not actually result in delivery of the
basic commodity. Traders discover the advantages
of the futures market by selling the contract or
buying it back.

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 What are futures markets?
What are the advantages and
disadvantages of futures trading?
The ultimate goal of buying futures contracts is to
purchase at a certain price and sell the contract
later at a higher price. Futures contracts are sold
on the floor of a futures exchange.

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 What are futures markets?
What are the advantages and
disadvantages of futures trading?
A. A futures contract is difficult to understand because
it is not in writing like a cash contract. A futures
contract is a verbal agreement between the buyer
and seller made on the floor of an exchange that
specifies the time of delivery, place of delivery,
time of payment, and quality of the item.

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 What are futures markets?
What are the advantages and
disadvantages of futures trading?
B. Another market—the stock market—is a centralized
market. However, it is completely different from the
futures and cash markets. Futures markets trade
contracts on commodities and financial products.
• Stock markets are markets that trade shares of
ownership in publicly owned companies. When an
individual buys stocks, he or she is buying shares of
a company. When an individual buys futures, he or
she is buying into a market that simply helps
stabilize price as well as supply and demand
fluctuations.
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