Before being the popular investment venue that is now, online future trading traces its humble beginnings to eighteenth century Japan with the trade of rice and silk. This same concept was also started in America by farmers who would bring their produce, such as oil, root crops and wheat to the market in the hopes of selling all their goods.
However, since a system to determine supply and demand was not established yet, excess supply of commodities led to waste, and shortage of supplies drove prices up. Eventually, the market participants, both buyers and sellers, were able to devise a way to place orders for a commodity in advance. They would reach an agreement to purchase goods for delivery at a future time and for payment upon delivery.
These were the early forerunners of futures contracts. People then learned to make money out of these contracts by means of speculating. Some would buy a contract when prices are low and sell them once prices skyrocket, therefore earning for them a profit. Eventually, this evolved into a full-blown investment market, with products expanding to include private interest rates and other financial instruments. From its humble beginnings, we now have our online future trading.
Today’s online future trading is a center for stiff competition among buyers and sellers. This also proves to be an effective means to stabilize prices. As goods are now purchased in advance, shortage or excesses of commodities are no longer problems as the suppliers are now given enough time to produce what is needed. However, due to the volatility of the economy, the futures market is especially risky and complex.
In trading future online or the traditional way though, one must remember that an investor do not actually intend to make or take the actual delivery of the goods they are trading, or they will end up with warehouses full of inventories. One is there merely to expect a profit from rising and falling prices. A trader’s goal is to buy low and sell high and vice versa. It is also important to know that before a futures contract expires, a trader will have to sell their contract to take or make delivery to an interested party.
There are two basic venues for futures trading: the traditional floor-trading venue and the more popular future trading online. Only the venue varies but essentially they are the same in either format. The main difference is that in the classic floor-trading venue, brokers play a central role as they are the ones responsible for carrying out customer orders. Customers submit their orders to the brokers in the trading pit who in turn match their bids with other brokers standing in the pit.
When a deal is closed, results are relayed to the customer and then sent to brokerages and clearing houses. Resulting prices are then immediately distributed worldwide. For online future trading, customers transact their business directly from their computers to an online marketplace offered by an exchange. Submission and execution of orders for the customers are done electronically. Brokerage approval to trade as well as notice of activity to brokerages, are carried out by the computer.
The exchange computer system tracks down all trading activities and marks matches of bids and offers. Information is instantly relayed to brokerages and clearing houses. Within seconds, prices are made known across the world. However, due to economic susceptibility future trading, online or not, is very risky. Thorough research and sound economic judgment are handy tools in getting involved and succeeding in this market.