There are many types of financial instruments that traders and investors trade. Futures is one of them just like stocks and bonds. A stock gives you ownership of one part of a company. If you own 10,000 stocks of a company, you own 10,000 parts of that company. On the other hand a bond is an IOU that governments and companies issue to finance their operations.
Futures contract as the name implies is a binding contract between two parties for the delivery of a commodity or an asset or even a financial instrument at some future date between the buyer and seller of that contract. Futures market is a highly regulated market with the CFTC responsible for its regulation. Buyers and sellers don’t come in direct contact with each other. In between is the Central Clearing House that enforces the contract reducing the risk of party default!
Futures market is the backbone of the whole sale and retail commodity market ranging from oil, wheat, corn, heating oil, meat, cattle, soybeans and other foodstuff. So you can well imagine the importance of the futures market. Futures market serves the purpose of hedging and speculation.
These contracts get regulated through a central clearing hours so the risk of one party backing out of the contract is minimal. This limits the time and risk exposure experienced by hedgers and speculators. Now, futures contracts are by design time bound and expire at a fixed date.
Most brokerage firms require individuals to deposit a fixed amount of at least $5,000 in their brokerage account before they can start trading futures. Now, almost all over the world, futures trading have shifted from open outcry to electronic trading.
Electronic trading has lowered commissions and other transaction costs for trading these contracts plus price discovery is better and there is a more level playing field for all the players in the market. In old times, futures contracts got traded on Futures Exchanges in open outcry pits. It still takes place on the floor of these exchanges but with the advent of electronic trading most of the trading is now shifting to electronic platforms. GLOBEX is the most important platform for trading different futures contracts.
The most popular futures contract that get traded on GLOBEX are S&P 500 stock index futures, NASDAQ 100 futures, Eurodollars, CME E-mini futures, foreign exchange rates, gold futures and crude oil futures. You can also trade options on GLOBEX.
GLOBEX trading overnight tends to be thin and more volatile than during the official trading hours that are from 8:30 AM EST to 4:15 PM EST. If you trade financial news on Bloomberg or CNBC before the stock market opens officially, you will find quotes on S&P 500 futures and other taken from GLOBEX.
These GLOBEX quotes are real time and if you have taken a position with sell stop or a buy order, early next morning, you might find your position executed with a new position or out of the position altogether. Futures can be highly profitable if you know how to do it!
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