Futures Trading Developments

Since the 1970s, futures trading has been big business.  Global stock trading has allowed futures to be traded with a liquidity that is unprecedented in other markets, leading to a widespread uptake in trading futures.  From wooden etchings of commodity agreements through to hi-tech, instant global transactions, futures trading has come a long way in recent times, and the continuing development of futures as an instrument is paving the way for future generations of traders to get started investing in derivatives.

At the start of their lifespan, futures contracts were little more than verbal or symbolic agreements, designed to allow traders to generate an immediate return on future delivery of commodities.  This was particularly useful for farmers and merchants throughout the early to middle ages, and even as late as the 20th century futures were used in personalised trading (as opposed to exchange trading) to provide the same cash flow benefits.

The ability to hedge against future manufacturing costs also made futures an attractive option for manufacturing and secondary sector businesses.  Bread manufacturers, for example, used futures to guarantee the future cost of wheat to keep a lid of the costs of production, while car manufacturers turned to steel futures in an attempt to curb the rising costs of raw materials.

While today this is still a predominant feature of futures trading, the advent of cash-settled futures has opened up the market to a wider array of speculators and investors with no direct interest in the underlying asset – rather, their main concern is with the ability to speculate on asset prices over the medium to long term.

Perhaps the most significant changes to trading futures have arisen over the last 30 years or so, with the development of automatic, electronic trading and the widespread uptake of the Internet as a platform for remote trading.  As the global exchanges began to investigate the merits of moving away from physical trading systems to virtual platforms, so too did the trading experience become much more streamlined and ultimately more profitable as a result of the reduced transaction costs afforded by technology.

With the rise of the Internet and the wild growth of online brokerage platforms, futures have also now been opened to a mass-market audience, and more private individuals are getting involved in trading than ever before thanks to the ease with which anyone can setup an online trading account.  Over such a short space of time, the Internet has revolutionised the trading environment forever, and the future direction of futures trading, not to mention other derivatives, is something of keen academic and practical interest for those involved.

The development of futures contracts over the centuries has been marked, but none more so than the growth and evolution of futures over the 21st century.  As computer technology becomes an even more integral part of our daily lives, the whole trading outlook for futures has been radically altered to make it much easier and more intuitive process.  As the electronic dimension continues to expand, so too will futures become more refined and more streamlined as an instrument, which could pave untold opportunities for investors over time.

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