futures market

Also found in: Dictionary, Thesaurus, Encyclopedia, Wikipedia.
Related to futures market: commodities market, Futures trading

Futures market

A market where contracts for future delivery of a commodity or a financial instrument are bought or sold.

Futures Market

The supply and demand for the trading of futures contracts. A futures contract is an agreement to buy and sell an asset at a certain date at a certain price. That is, Investor A may make a contract with Farmer B in which A agrees to buy so many bushels of B's corn at $15 per bushel. This contract must be honored whether the price of corn goes to $1 or $100 per bushel. Futures contracts can help reduce volatility in certain markets, but they contain the risks inherent to all speculative investing. These contracts may be traded on the secondary market, creating the futures market. The investor holding the contract at its end must take delivery of the underlying asset. Trading on the futures market often occurs on a futures exchange, such as the Merc.

futures market

A market in which futures contracts are bought and sold. The various organized futures exchanges specialize in certain types of contracts. For example, corn, oats, soybeans, and wheat are traded on the Chicago Board of Trade, while the Commodity Exchange in New York handles trades in copper, gold, and silver. Other futures markets include the Chicago Mercantile Exchange, the Coffee, Sugar and Cocoa Exchange, the International Monetary Market, the Kansas City Board of Trade, the Minneapolis Grain Exchange, the New York Cotton Exchange, the New York Futures Exchange, and the New York Mercantile Exchange.

futures market


futures market


forward exchange market

a market that provides for the buying and selling of COMMODITIES (rubber, tin, etc.) and FOREIGN CURRENCIES for delivery at some future point in time, as opposed to a SPOT MARKET, which provides for immediate delivery. Forward positions are taken by traders in a particular financial asset or commodity, the price of which can fluctuate greatly over time, in order to minimize the risk and uncertainty surrounding their business dealings in the immediate future (i.e. ‘hedge’ against adverse price movements), and by dealers and speculators (see SPECULATION) hoping to earn windfall profits from correctly anticipating price movements.

Traders seek to minimize uncertainty about future prices by buying or selling futures, particularly OPTIONS, i.e. contracts that promise to buy or sell a commodity or financial asset at a price agreed upon now for delivery at some later point in time, usually within a three-month period. For example, a producer of chocolate could contract to buy a given amount of cocoa at today's price plus a percentage risk premium for delivery in two months’ time. Even if the price of cocoa were to go up markedly, the manufacturer knows that he is still able to buy at the (lower) contract price and is thus able to plan his raw material outlays accordingly. Similarly, the growers of cocoa can contract to sell the commodity at an agreed price now for delivery in the near future in order to cover themselves against adverse price changes. Unlike the spot market, where commodities are traded in the physical sense, in the futures market it is only these contracts that are bought and sold.

Between the original buyers and producers, using futures as a hedge to minimize risk, stand the various dealers and speculators who buy or sell the paper contracts to such items according to their view of probable price movements in the hope of securing windfall profits.

Forward prices reflect anticipated future demand and supply conditions for a commodity, financial security or foreign currency being traded.

Specifically, the forward prices will be based partially on current spot prices but will also take into account interest rate and inflation rate trends. The difference between the current spot price of a commodity and the forward price constitutes the ‘forward margin’. The forward margin can be at either a discount or a premium to the spot price. Forward margins for a particular commodity, such as cocoa, in different commodity markets in London, Chicago, etc., tend to be similar as a result of the buying and selling of futures contracts between these markets (ARBITRAGE).

The LONDON INTERNATIONAL FINANCIAL FUTURES MARKET (LIFFE) constitutes the largest European Union centre for forward dealings in securities and commodities. The forward markets in the UK are regulated by the Securities Association in accordance with various standards of good practice laid down under the FINANCIAL SERVICES ACT 1986. See DERIVATIVE, COMMODITY MARKET, FOREIGN EXCHANGE MARKET, STOCK EXCHANGE, COVERED INTEREST ARBITRAGE, EXCHANGE RATE EXPOSURE.

References in periodicals archive ?
Lafuente (2003), "The Effect of Spots and Futures Trading on Stock Index Market Volatility: A Non-parametric Approach", Journal of Futures market, Vol.
This paper tests for whether or not the foreign exchange futures market displays informational advantages relative to the OTC market, in terms of conveying information of informed traders.
LME sources note that financial speculators play an essential role because they bring additional liquidity to a futures market, thereby helping industry to hedge effectively.
That's if you play the political futures markets or place bets on one of the myriad of online gambling sites that feature political wagering.
Poindexter and crew believed that just as the commodities futures market predicts the cost of a barrel of oil and allows industry to prepare for price mores, PAM could help U.
However, sometimes these phenomena put the market out of kilter with the supply and demand picture for longer periods of time, sometimes as much as 1-2 months, and even longer in some cases, making it very difficult for the coffee industry to trade in the futures market during those periods.
However, by using health-care futures, the company was able to almost completely offset this loss with a corresponding gain of $297,900 in the futures market.
Another option would be to simply imposelimits on how dramatically the futures market can shift in a day, a proposal that is considered virtually un-American by the industry but which is already in effect in most other futures markets.
Policies Concerning Futures Markets and Prospects for Institutional Changes
Under the system of rigidly fixed rates that do not change--the ideal envisioned by some supporters of Bretton Woods--there is only limited room or need for a broad, resilient public futures market in currencies.
It has now become the first foreign bank to be allowed access to the gold futures market.