What Are Futures? Where Can They Be Traded And Can They Be Traded Online?
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March 15th, 2010 at 8:22 am
Futures are when someone buys something (like oil or lumber) at a certain price in the future.
March 15th, 2010 at 9:06 am
Futures are an obligation to buy or sell something on a particular date. Some futures are “physically settled”, meaning that if you allow the futures to expire you will either receive (if you are the buyer) or you will have to deliver (if you are the seller) the commodity underlying the contract. For example, wheat futures on the Chicago Board of Trade are for 5,000 bushel of a particular grade and type of wheat to be delivered in Chicago.
Futures on financial instruments are typically “cash-settled” meaning that upon expiration, you are paid, or need to pay, a cash amount based upon whether the price of the financial instrument “settles” at a price more favorable than when you traded the contract. S&P 500 futures contracts trade on the Chicago Mercantile Exchange.
Like all financial products, you will need a broker to trade futures. Technically, the broker is called a “futures commission merchant” unless you use an “introducing broker”. For online trading of futures, I know interactivebrokers.com best. There are many other online futures brokers.