Future trading was started and used by commodity traders from the 20th century.

Future trading was started and used by commodity traders from the 20th century.

Future trading was started and used by commodity traders from the 20th century. In japan, rice farmers and rice traders began trading rice future contrack since 1910, which later gave birth to japanese candlestick. The principle of futures trading is trading contracts that have been standarized and standardized by the exchange. The commodities entered into the contract will have the quantity, quality, and delivery date sell a futures contract, only the price is agreed upon. For example, corn farmers. In june, farmers grow corn and harvest in september. Animal feed mills buy corn for animal feed. Farmers want to sell at pricehigh, the factory want to buy at a low price. Here, farmers as seller and factories as buyers. Physical form.

Will be handed over in september. To protect its value, corn future contracts that mature in september, begin trading in june. So, the farmer will buy and the factory will sell the contract to protect the value of expenditure and supply.

The concept of hedging is beginning to be glimpsed by the American stock exchange. In 1982, the kansas city board of trade began offering the value line index, because if stock prices fall, how can investors protect the value of their invesments? With the stock price starts to rise, they can liquidate their short positions and take profit to cover losses on their stock prices that have declined.

This concept was initially very controversial, so some members of congress tried to declare future trading as ilegal. However, Investors felt they were protecting the value of their invesments, so the congress failed with that idea. Legislators are not wise enough to the actual situasion on the ground.

In 1986, the standard and poor (S&P) contract was the contract that had the largest transaction volume in america. Due to the hedging nature, some investment managers and mutual fund began to make it a part of their portofolio. Form there was also born an industry and several agencies formed by the goverment to oversee and regulate future trading.