Futures

The futures market consists of the negotiation of contracts for the purchase and sale of certain goods at a future date through an agreement of price, quantity and expiration at present.

Also known as "forwards", they appeared as a protection system for agricultural producers in the 19th century, as they could thus give way to their production in moments of high production (harvests) and regulate and stabilize prices, which were irregular, throughout the year.

In this way, futures markets are born with the need to stabilize and appease the prices and quantities to be exchanged at an imprecise moment. It is then an element of coverage, that is, of protection against possible market decisions that allow regularity in marketing.

Despite their origin as a hedging and stabilization tool, today futures markets are included within financial products, as they are one in which more profitability can be extracted with good trading, and where exogenous circumstances and the environment determine variability. in prices, thus being one of the most demanded products.

First futures market

The first futures markets were the Chicago Grain Exchange, which in 1848 began to establish the basic rules of trading and contracting operations for future deliveries of agricultural products, as well as in 1730 in Osaka, Japan, where there was already a well-established infrastructure. settled on future rice deliveries.

Example

Imagine a situation, today, July 2020, we promise to buy the producer at 100 euros a ton of corn with an expiration date of July 2021. For this last date, it is possible that the price is higher than the agreed price, which would cause an underlying loss to the producer and a gain to us, or that the price is below the agreed, opposite situation to the previous one.