23 Feb 2017
Futures Trading Vs OTC Forex & CFDs... FIGHT!
Futures Markets evolved in the 19th century to bring producers and consumers together. In the USA, exchanges opened in Chicago to service the needs of mid western farmers and food producers (these would evolve into the modern day CME and CBOT exchanges) whilst in the UK, the informal trading of metals that had existed for hundreds of years in the courtyard of and outside the Royal Exchange become formalised with the establishment of the LME or London Metal Exchange. The role of these exchanges was to provide a marketplace where producers and their customers could buy raw materials and food stuffs for delivery on a fixed date in the future. Trading was conducted using standardised contracts, which specified the quality or grade of the underlying and the amount that each contract or lot represented. For the first time both producers and consumers could plan ahead and have a clear idea about budgets and revenues. Producers could forward sell their production and know in advance what their income would be. Whilst consumers / manufacturers could buy raw materials for future use at a known price, allowing them fix their costs in advance. These were essentially trade markets that serviced the needs of the associated industries and their infrastructure and practices were designed accordingly. That legacy remains in place today.