foreign currency exchange

	Why FOREX Trading? By Gay Redmile FOREX (foreign exchange) trading is the buying and selling of currencies. Currencies are always bought and sold in pairs. As a forex trader you are speculating that the currency you are buying is Read more...
	Online Currency Trading and the FOREX Market - A Flexible Alternative to Commodity Trading By Geoff Morris Online currency trading takes on more than just a speculators or investors role in today's complex markets. If you are running a multi-company trading business, or even if you are 'just' a property Read more...
	FOREX versus Stocks By David Greene Stocks have been a popular investment for hundreds of years. Companies issue stocks to raise capital for expansion and new projects, and each share of the stock represents a partial Read more...

The origins of today's futures market lies in the agribusiness markets of the 19th century. At that period, farmers began selling contracts to deliver agricultural goods at a future time. This was done to predict market needs and to insure that ensure supply and demand were stabilized during off seasons.

The present futures market includes far more than agricultural products. The modern futures market is a worldwide market for all sorts of commodities including manufactured goods, agricultural products, and financial instruments such as currencies and treasury bonds. A futures contract states what price will be paid for a product at a specified future delivery date.

When the futures market is traded by speculators, the actual goods are not important and there is no expectation of delivery. Rather, it is the futures contract itself that is traded as the value of that contract changes daily according to the market value of the commodity in the world markets.

In every futures contract there is a buyer and a seller. The seller purchases a short position and the buyer takes the long position. The futures contract specifies a buying price, a quantity and a delivery date. For example: A farmer agrees to deliver 1000 bushels of wheat to a baker at a price of $5.00 a bushel. If the daily price of wheat futures falls to $4.00 a bushel, the farmer's account is credited with $1000 ($5.00 - $4.00 X 1000 bushels) and the baker's account is debited by the same amount. Futures accounts are settled daily.

When the contract period ends , the contract is settled. If the price of wheat futures is still at $4.00 the farmer will have made $1000 on the futures contract and the baker will have lost the same amount. However, the baker now buys wheat on the open market at $4.00 a bushel - $1000 less than the original contract, so the amount he lost on the futures contract is made up by the cheaper cost of wheat. Similarly, the farmer must sell his wheat on the open market for $4.00 a bushel, less than what he anticipated when entering the futures contract, but the profit generated by the futures contract makes up the difference.

The baker, however, is still in effect buying the wheat at $5.00 a bushel, and if he hadn't entered into a futures contract he would have been able to buy wheat at $4.00 a bushel. He protected himself against rising prices but he loses if the market
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price drops. Speculators hope to profit by the daily fluctuations in the futures market by buying long (from the buyer) if they expect prices to rise or by buying short (from the seller) if they expect prices to fall.