Futures Trading: Futures Contracts

In futures trading Price is determined by supply and demand among traders competing to buy (bid)  and sell (offer) orders on the exchange of that particular Futures contract

Nowadays, and be very careful with this, the underlying asset to a futures contract may not be traditional “commodities” at all – that is, for financial futures, the underlying asset or item can be Financial indexes (Dow jones, Dax, S&P 500, Eurostoxx 50) currencies ( EUR/USD, the Japanese yen, etc,) securities (apple, google, etc), interest rates (ten year Bonds, federal funds, etc)

Nowadays, these underlying assets are the most liquids and tradable instruments around the world, Financial indexes are the MOST LIQUID futures contracts, therefore they are the “safest” in terms of order executions and number of participants, by liquidity I mean, the number of contracts traded daily, the volume or amount to give it a name. Still some commodities like Corn, Oil, Natural Gas, gold, are pretty High in Liquidity like financial indexes and interest rates.

Cocoa on the other hand or Lumber may not be the case for short term traders

Future contracts are:

• Exchange-traded, meaning that they are traded at an exchange, every party against every party, the exchange makes the settlements at the end of the day and trading is done.
• Standardized assets. You buy or sell something that has a particular set of specifications (quantity, quality, delivery date, etc)