Future Option Trading - A Brief History and Overview

By:Casey Yew

One of the most exciting and little understood markets available to the investor is the Futures Option Market, or Commodity Trading. It is similar to the Stock Options Trading market in many ways, but there are also some major differences. Some of the terminology used in Futures Trading also has a different meaning than the same term when applied to Stock Option Trading, and caution must be used to avoid confusion.

In the United States, all of the trading of future contracts are recorded and monitored by the Commodity Futures Trading Commission (CFTC). This agency was created by Congress in 1974 and replaced the earlier Commodity Exchange Authority. The CFTC acts as a watchdog over the entire market, and has considerable power in enforcing its rules and standards.

The Future trading market is often called the Commodity Market, or commodity exchange. This is because the underlying asset is a commodity rather than a share of stock. The commodity can be almost anything from a barrel of olive oil to the value of an index. The most important difference between a Future option and a stock option is that the contract in a Future option gives you the right and the obligation to purchase or sell the underlying asset at a certain price on a specified date. It is obligation that is the key difference, as the stock option is a true option, and no obligation exists.

The trading of commodities has a long history. Some claim the market can trace its origins back to the Roman era. It was certainly active in Japan several centuries ago where the trade was in rice and silk. The market began in the United States in Chicago in the early part of the nineteenth century. Chicago grew and became a centre for transportation and for the trading of the agricultural products of the growing Midwest. The massive amounts of produce that flowed into Chicago coupled with the primitive methods of transportation and communication created virtual chaos. The supply and demand of various commodities fluctuated wildly, and as they did prices rose and fell so quickly that everyone involved were constantly at risk. The market developed to provide some measure of protection from these risks.

The basic concept behind the market was the idea of "forward" contracts. The forward contract was basically a promise to buy now, but pay and deliver later. It brought order to the chaotic market place because suppliers were given some security that their products would be purchased at an acceptable price.

From this beginning, the concept of forward trading developed in the modern futures market. It has been regulated and brought under control, but it remains a volatile and expanding entity. The definition of commodity continues to expand. No longer is it restricted to grain and cattle, but now includes just about every disposable item, as well as non-tangibles like interest rates, and financial instruments. Economist debate over where the definition of commodity will reach its end. Is it an infinite concept? Are such things as human life and free time considered commodities?

One thing is certain. The Future Options Market is incredibly complex, and very little that happens in the world does not impact the prices of the future. Weather conditions impact agricultural output. Political events on the other side of the World impact oil prices. The global economy intertwines more and more each day as transportation and communication continue to shrink the globe.

All of this may appear extremely daunting to the beginning investor, but with a little bit of work with the terminology and the procedures of the market, a profitable and exciting investment option awaits.

Digg del.icio.us Blink Stumble Spurl Reddit Netscape Furl

Article keywords: Future Option Trading

Article Source: http://www.articles2k.com

Among the Many Investment Opportunities that Exist, Option Trading Stands as Both One of the Most Exciting and Risky as well as One that Offers Some of the Best Chances for a Substantial Return. Learn Options Trading Basics, Strategies and Pricing here at http://www.option-trading-fortune.com

Top Stock Market Investing Articles
1). In Value Stock Investing, Quality is Job One By : Steve Selengut How much financial bloodshed is necessary before we realize that there is no safe and easy shortcut to investment success? When do we learn that most of our mistakes involve greed, fear, or unrealistic expectations about what we own? Eventually, successful investors begin to allocate assets in a goal directed manner by adopting a realistic Investment Strategy.
2). Openwave-Could the little company ever become king? By : J Randy Durig Openwave has a very unique and valuable business in the wireless data market. It has a dominate market share of 50% in both the browser and in the gateway transitions for mobile phones. Both products are a core element in the data cell phone market. Our philosophy is to own the critical elements in markets that appear to have revolutionary growth. In January 2004 we wrote an article saying the wireless revolution has begun.
3). Stocks -A Winning Way To Scan For Stocks That Are In Uptrends By : Peter Lim With thousands of stocks listed in the stock exchange for trading, how does a trader go about his stock selection? I am not refering to the fundamental approach where the trader studies the fundamentals of the company, and research the performance results of the company, check its price-earnings ratios or check its balance sheets and turnover and its dividend yield.
4). Stock Trading Psychology By : Tim Renolds Many of today’s highly successful traders will tell you that the general key to success in trading is to be able to comfortably take a loss. It is general knowledge among experts in the trading psychology field and among traders that the market is not predictable and it is safe to say that it never will be. In the world of trading, it is expected to take a loss; even those who are highly skilled traders know that it is inevitable.
5). How to make money in the stock market By : Alexander Chong There are abundant of money in the stock market. However, not everybody can get the money out from there. Some people can gain a lot from the stock market but some has lost a lot of money there. It is very indecisive. Sometime at that moment, you loss money but after a few days, you may earn a profit and sometime is reverse. So, how should we do to get the money out from the stock market? Usually, there are two ways to get the money out from the stock market; that are investing and trading.
6). Stock Brokers -- Just The Facts By : Ron King Most of the buying and selling on the stock market is handled by stock brokers on behalf of their clients, who are the investors. Many different types of brokerage services are available. Full-Service Brokers "Full-service brokers" offer a variety of ways to help clients meet their investment goals. These brokers can give advice about which stocks to buy and sell, and often have large research departments that analyze market trends and predict stock movements, for their clients.
7). Entities in the trading system in Indian Stock Markets By : deepan There are four entities in the trading system. Trading members, clearing members, professional clearing members and participants. 1. Trading members: Trading members are members of NSE. They can trade either on their own account or on behalf of their clients including participants. The exchange assigns a Trading member ID to each trading member. Each trading member can have more than one user.
8). Use the Power of Autosuggestion in the Stock Market By : Trading Framework Self-Confidence is an essential starting point for any business venture. This is true even more if the business is trading in the stock market because psychology plays such a major role. Keep reading, this might change your life! About 10 years ago, I received a copy of the book "Think and Grow Rich!" written by Napoleon Hill. Today, I credit most of my success in business (including trading) to this book.
9). Make Money With Penny Stocks By : Sandra Stammberger Penny stocks simply refer to trading in shares that range from a fraction of a penny to $5.
10). Stock Trading – What Every Investor Should Know By : panikkarson Never try to fight against a trend. It may be tempting to buy a falling stock in order to average your costs. In fact, many investors seem to recommend such a step. In practice, in a majority of situations this only results in throwing good money after bad. Always have a stop loss, for every stock. If your stock moves down, at what price must you definitely sell? If you do not use historical data and technical analysis to arrive at investment decisions, you must have at least a fixed-amount method.

New Stock Market Investing Articles
1). How To Take Your Online Stock Trading To The Next Level and Explode Your Income! By : Tom Jerico If you are looking for information about how to start trading stocks, then you are not alone. The best news is the internet is a wealth of information where you can learn how to trade.
2). The Publicly-Traded Venture Capital Fund By : Thomas McCarthy Venture Capital Funds have generated enormous returns in the past decade. Now you can invest in a Publicly-Traded Venture Capital Company and diversify your portfolio with one Investment!
3). The China Factor By : George Leong Unless you have been in a cocoon, you most likely are aware that China will in all probability become the next economic superpower in the world. The country’s economy is on steroids, growing at close to double digits over the past few years and this is not expected to change. And if you understand the vast size of the country’s economic engine, you would also understand that China is a place where you need to have some capital invested.
4). Six Keys to Find Momentum Stocks By : Billy Williams Copyright 2006 Billy Williams Momentum stock trading has been around for awhile and has been proven to a sound method for creating incredible wealth in the stock market. During the 1990s, for example, Clear Channel Communications went up 5,615%, Emulex rose 6,412%, Dell Computer went up 10,198%, Activision went up 13,819%, and Semtech rose 15,231%.
5). An Industry Blueprint To Stocks And Shares By : P. Johnson In this day and age, a lot of things have changed from how they used to be, which can be new and exciting for most. Because of the large size of the stock market, beginner investors appear to feel overwhelmed as to where to even activate investing their money. To most people, the stock market presents a messy web of options but does not reveal the highway map of clarity to guide their way along way in their investment adventure.
6). Buy To Cover Orders With Stock Trading By : P. Johnson If you have always wanted to know more about this topic, then get ready because we have all the information you can handle. Within the buy to cover orders, there are four options in which to place against your stock purchases. When you buy to cover on a stock order, you are in agreement that you will buy the stock at the latest share price; however, because there is a lag between the time you approve to buy the stock and the actual transaction, a price difference may occur.
7). Stocks And Shares - How To Trade Profitably In A Bear Market By : Peter Lim Trading in a bull market is easier than trading in a bear market. Many traders find they can make money trading in bullish markets, but when there is a major correction underway or when the market is bearish, they literally freeze and are unable to trade successfully or find profits in their trading. First,when a market has collapsed, it is important to accept the fact that the market trend has changed from bullish to bearish.
8). Constant Access with Stock Trading Online By : Manny St Cyr In a world built on capital, we humans are forever vying for that next big money-maker. It seems that everybody forever desires more cash. Some strive for a senior education; others compete for that big promotion. No worry what the method, we all find a way of increasing our income. Investing is a customary form of making an added buck. With the obsession of the stock market in gorged affect, many of us chance on that up-and-coming business, or upright product that has the latent to fuel in value.
9). Vonage Shorts Out, Under Armour Has Lofty Ambitions By : George Leong Under Armour, Inc. (UAI) debuted on November 18, 2005 at $31. The maker of branded performance clothing is growing its brand recognition via the use of hip brand promotion that is trying to wrestle away interest from the traditional buyers of Nike (NKE). Under Armour has targeted the youth and athletic market where it competing with the established and strong Nike brand.
10). Online Stock Trading By : Kent Pinkerton Among the many revolutionary changes brought about by the advent of the Internet is online stock trading. Once the exclusive preserve of the rich and the wealthy, the stock market has now become a place where even the common man can play a part. Investors today can use Internet client-server technology to trade stocks anywhere, anytime they like. Just a couple of mouse clicks and the client is through with a thousand-dollar transaction! There are several ways in which one can participate in online stock trading.