What are Futures? For new traders or people looking to try trading as their full-time career, this is a common question. The best and most effective way to answer that question is by giving a little history on how futures trading began.

In the beginning of monetary exchange, goods were often exchanged or “traded” for payment. But, as time went on, purchasers of goods realized that there were certain goods they needed at specific intervals throughout the calendar year, but not necessarily right away. Additionally, if they immediately bought the goods, there was a good chance that those goods would perish before being needed or used. Not to mention, if they chose to wait to purchase the goods until later, there was also a high probability of a raise in price.

Enter the founding of Futures, which were developed in answer to growing productivity calling for more agricultural storage, transportation and more efficient distribution. The entrance of Futures in the market allowed purchasers to enter into a transaction in the present while still allowing them to collect the purchased goods at a later date. Purchasers locked in the present price for a future transaction.

On the other side, in addition to helping purchasers secure a price, futures also benefited sellers of goods: when not ready to sell their items, futures came in handy, as they allowed them to also lock in a price for a future sale. In short, for both sides of the monetary exchange, futures allowed them to limit their price risk.

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