What is the Futures Market and why would anyone want to trade it?
A Futures Market is a financial exchange where people can trade Futures Contracts. Well, what is a Futures Contract? A Futures Contract is a legally binding agreement to buy specified quantities of commodities or financial instruments at a specified price with delivery set at a specified time in the future.
It is important to emphasize the word Contract. The first important difference between the Futures Market and, say, the Stock Market is that the Futures Market trades contracts, not shares of stock. You are not buying and selling a share (or piece) of a company. A Futures Contract is an agreement between investors to trade a specific quantity of a commodity or financial instrument, for example, gallons of gas or tons of wheat.
The Chicago Mercantile Exchange (CME), where the majority of Futures contracts are traded, realized that individual investors want to trade Futures just like major institutions; individual traders want to leverage their risk as well. They also understand that small investors will not risk millions of dollars on gallons of gas contracts or tons of wheat. Therefore, the CME decided to create an investment environment that would entice individual investors to trade Futures.
Remember, as a small investor, you have lots of exchanges available to you for your trading day. You can invest in large-cap stocks on the NYSE, tech stocks with the NASDAQ, ETFs - AMEX, and options at the CBOT. To entice investors to trade Futures, the CME created an exchange that made other exchanges pale in comparison.
First off, the CME created Emini Futures designed specifically for individual investors. Thee in Emini means that they are traded electronically. You'll have a trading platform right on your desktop where your trades go to the CME. The mini means that the contract is a smaller version of the exact same contract that the larger institutions trade.
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