Origin of Futures market: The Futures market began in the 19th century when farmers began selling contracts to deliver their agricultural products later. Supply and demand was stabilized throughout the year because of this activity. The present futures market is not restricted only to agricultural products. It has become a global market containing not only agricultural products but manufactured goods and financial instruments too.
Working of the Futures market: In every contract there is a buyer at the long position and a seller at the short position. The contract mentions a buying price, a quantity and a delivery date. The daily fluctuations in the future market ensure profits to traders and speculators.
FUTURES VERSUS FOREX
The Forex and the Futures despite their differences have one basic similarity. Both types of trading involve risk. Among the various differences, a few are listed below:
1. Differences in Accessibility: The FOREX is open 24 hours a day, 5 days a week, while most futures exchanges are open 7 hours a day. This ensures more liquidity for Forex traders as they can take advantage of trading opportunities whenever they arise rather than waiting for the market to open.
2. Differences in Commission: Transactions in Forex are commission-free. Brokers earn money by spreads that is the difference between the bid and ask price. On the other hand, traders must pay a commission or brokerage fee for each futures transaction they enter into.
3. Differences in Risks: The Forex market is less risky in comparison to the futures market. This is because there are built-in safeguards in the trading system.
4. Differences in potential investors: The forex market is tempting for technical and fundamental traders, whereas the Futures market does not offer much to technical traders.
5. Differences in Leverage: Forex trading has a much higher amount of leverage than Futures trading. Forex trading offers up to 100:1 leverage.
6. Differences in liquidity: The Forex market is a more liquid market in comparison to the Futures market. Since the Forex market is the largest financial market in the world trading substantially exceeds the daily exchanges in the futures market.
7. Differences in Execution: Forex transactions are much larger in trading volume rather than Futures market. Because of this reason transactions are instantly executed.
8. Differences in trends: The trends in the Forex market are much smoother than those in the futures market. The futures market does not even come close to the volume and participation in the forex market.
9. Differences in Price: The price offered in Forex trading is a real time price (the price at which you actually buy or sell) as compared to the Futures market which is based on the tick price (the last price traded).
source folsol.com