All futures contracts are standardized
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- Category: Beginners Guide
All futures contracts are standardized in that all of them hold a specified quantity and quality of a commodity. For instance, a Pork Bellies futures contract (PB) holds 40,000lbs of pork bellies of a certain size; a Gold futures contract (GC) holds 100troy ounces of 24 carat gold; and a Crude Oil futures contract holds one thousand barrels of crude oil of a sure quality.
A Quick History of Futures Trading
Before Futures Trading came about, any producer of a commodity (e.g. a farmer rising wheat or corn) discovered himself at the mercy of a vendor when it got here to selling his product. The system needed to be legalized in order that a specified quantity and high quality of product could possibly be traded between producers and dealers at a specified date.
Contracts were drawn up between the 2 parties specifying a certain quantity and quality of a commodity that will be delivered in a specific month...
...Futures buying and selling had begun!
In 1878, a central dealing facility was opened in Chicago, USA the place farmers and dealers might deal in ‘spot’ grain, i.e., immediately deliver their wheat crop for a money settlement. Futures trading advanced as farmers and sellers committed to buying and selling future exchanges of the commodity. For instance, a supplier would agree to purchase 5,000 bushels of a specified quality of wheat from the farmer in June the next yr, for a specified price. The farmer knew how much he would be paid upfront, and the seller knew his costs.