Our modern futures market originated in the 19th century when farmers began selling contracts to deliver agricultural products at a later time. They did this to attempt to anticipate market needs and to smooth the supply and demand during the off-season.
The futures market has changed dramatically since then, in current times the futures market is no longer restricted to agricultural products. This worldwide commodities market now includes such things as manufactured goods and financial products as well as agricultural products. A futures contract is a guarantee that a certain product will be sold at a fixed price on a certain date.
When speculators play the futures market there is no expectation of the products being delivered and the actual goods are not even important. It is actually just the contracts themselves that are traded and the value of these contracts is in constant fluctuation.
In every futures contract there are two positions a long position and a short position. The short position is filled by the seller and the long position is the buyer. Futures accounts are settled on a daily basis.
As an example a farmer enters into a contract...
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