2. Introduction
• What are futures contracts?
– Futures contracts are bought and sold on a
future’s exchange
– An agreement to buy or sell a standardized asset
(or commodity) at a specified price at a certain
time in the future
2
3. Introduction
• What are futures contracts?
– Contracts are standardized according to quality,
quantity, delivery time, and delivery place of the
commodity
• Why Standardize?
– Easily exchangeable
– Liquid
– So that as many people as possible would like to
participate
3
4. Introduction to futures markets
– Price of these contracts is discovered through an
auction-like process
Buyers (bids) Sellers (offers)
Market Price
(Price Discovery)
4
5. Introduction to futures markets
– Price of these contracts is discovered through an
auction-like process
5
6. Introduction to futures markets
– Price of these contracts is discovered through an
auction-like process
Bids Price Asks
5.03 21
5.02 10
5.01 3
5.00
5 4.99
23 4.98
32 4.97
6
7. Introduction to futures markets
– Price of these contracts is discovered through an
auction-like process
Bids Price Asks
5.03 21
5.02 10
5.01 3
5.00
5 4.99 1
23 4.98
20 4.97
7
8. Introduction to futures markets
– Price of these contracts is discovered through an
auction-like process
Bids Price Asks
5.03 21
5.02 10
5.01 3
5.00
4 4.99
23 4.98
20 4.97
8
