Becoming%20Familiar%20With%20the%20Futures%20Market

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Becoming Familiar With the Futures Market

• Unit SAE/Commodities Marketing
• Job Becoming Familiar With the Futures Market

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What are cash markets?

• A cash market refers to a physical location
  where a product or service is bought or sold for
  cash.
• Examples of Cash Markets
• Grain elevators
• Clothing stores
• Wal-Mart
• Grocery Stores

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What is the futures market?

• The Futures Market is a centralize market where
  buyers and sellers of commodities trade special
  contracts called futures
• Examples of Futures Markets are
• Chicago Board of Trade
• Chicago Mercantile
• Kansas City Board of Trade

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Moisture below normal supply of corn to
decrease.

• Limited rainfall out here on the plains could
  decrease the supply of corn, increasing the
  already high prices. As a cattle producer, this
  headline reads disaster for you because youre
  already paying way more to feed your cattle than
  expected, decreasing your profit margin. Youve
  looked into alternative feeds, but nothing seems
  to give you the same feed to gain ratio as corn.
  Since the farmers almanac doesnt show any
  moisture coming in the near future, you decide to
  buy a corn futures contract before the price of
  corn goes even higher.
• Why might a producer turn to the futures
  market and
• what are some of the benefits and
  challenges?

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What are the Functions of the Futures Market?

1. Provide an efficient and effective mechanism for
   the management of price risk.
2. Provide an efficient mechanism for price
   discovery.
3. Provide a source of information for decision
   making.
4. Provide a means for firms to secure additional
   operating capital.

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Describe the different futures market
participants.

• Traders
• Speculators
• Traders who buy or sell futures contracts to make
  a profit
• Has no desire to actually own the physical
  commodity
• Assume price risk and add liquidity and capital
  to the futures markets
• Hedgers
• Use futures market for price protection by
  offsetting price change risk in the cash market
  by taking an equal, but opposite position in the
  futures market

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Who is the third participant?

• Brokers
• A company or individual that executes futures and
  options orders on behalf of financial and
  commercial institutions and/or the general public

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Any Questions