Awareness by market participants of their vulnerability to financial risk has resulted in the development of strategies to manage these risks, which has led to the tremendous growth in those segments of the financial market, which offered protection from these risks. The most striking example of such protection became futures trading.
Futures is a contract (agreement) for the sale of an asset in certain quantity and on a specified future date at today agreed price.
In such a transaction involving the buyer and the seller. The buyer undertakes to buy the asset at the stipulated time and the seller to make the sale in the same period. Mutual obligations stipulate the nature of the asset, its size, date of execution of the transaction and its price.
Futures trading is one of the types of investing that involves speculation on the price fluctuations of the goods. Different goods are daily bought and sold thousands of traders around the world. They all try to profit by buying commodities cheaper and selling them more expensive. Mostly futures trading is carried out solely for speculative purpose. In other words, very rare cases when a trader is buying a piece of paper called the Future is actually going to provide either the specified product.
Option contract is a contract that, in exchange for a premium, gives the buyer the right (without obligation) to buy or sell a financial asset at a specified price on a specified date) or earlier. The main difference between option from futures is that a futures contract is an obligation, but an option is a right. Option is a right to either buy or sell an asset at a fixed price at any time during a specified period.
Abroad leading futures exchanges are:
New York Futures Exchange (NYFE)
New York Mercantile Exchange (NYMEX)
Chicago Board Of Trade (CBOT)
Chicago Mercantile Exchange (CME)
London International Financial Options and Futures Exchange (LIFFE)