A futures exchange is a platform for trading a number of futures contracts involving commodity or financial instruments. The contract is binding at the time the agreement between the buyer and seller.
And there is no secondary market for trading in futures contracts. All contracts are primary contracts and every contract opened must be registered with the local stock exchange authorities.
Futures trading contracts are not issued as the issuance of stock but established when there is a buyer (long) and there is the seller (short) The buyer and seller of the contract creates a new contract each time they reach an agreement. If it were not for closing the previous long position, the sellers will be short.
Short and long are always in pairs, where there are parties who have a long position, there must be a short party. On futures exchanges, the buyer and seller contract creates a new contract each time they reach an agreement.
In the futures market, investors may realize losses or profits, either during buying or selling time, or when the purchase or sale transaction has closed position. Neither buyers nor sellers may not realize losses or gains on the purchase or sale, if the position continues to be open. While in the capital market, sellers should not be short.
Investors in the stock market will only realize losses or profits on selling shares owned. The possibility of profit only applies to the seller, while buyers will only make losses or profits at the time of sale.
Trading on capital markets is conducted in a manner in which the sale and purchase of shares is carried out physically. Whereas in futures trading a contract or agreement involves the delivery of an asset in the future.
A seller or buyer in the futures market are required to submit funds of about 10-50% the value of commodities traded as a sign of good faith. Although the practice of futures trading has been going on for a very long time, the history of modern futures trading began in the early 18th century in Chicago.
The margin collected by brokers trading futures as collateral for open contracts should be greater than the initial margin deposited by the clearing members on the clearing house.
The contracts traded on futures exchanges are generally standardized, and their variables are extensive. Liquidity remains high due to the limited quantity of standardized contracts.