It’s a common sight on the nightly news- a wild crowd of people standing or running about, tightly grouped, who are shouting and waving fistfuls of paper. If you’ve never had any experience with the futures market, a day on the trading floor can seem confusing.
Actually, everyone in the crowd knows exactly what’s happening. It’s almost like another language. Learn that language and you’ll also know what is going on.
Today’s futures trading floor is much different than it was when it first began quite a long time ago. They’d set up a stall on the roadside, and sit and wait for someone to buy something. Often, their crops would spoil because the farmers had no way to preserve or store them.
Because a lot of farmers had the same idea, at the same time, demand and the average price would be a lot lower. Demand would be lacking, and supply would be too high. Conversely, in the spring demand would be raised, and commodities and crops would be in very low supply.
Up until now, there wasn’t a way for people to easily place bids on commodities. Then, the market started using “forward contracts”, and these contracts were a forerunner to the commodity futures market we know today.
Futures prices and the bid and asked price are continuously transmitted throughout the world electronically. Regardless of what geographic location the speculator or hedger is located in, he has the same access to price information as everyone else.
Farmers, bankers, manufacturers, corporations, all have equal access. All they have to do is call their broker and arrange for the purchase or sale of a futures contract. The person who takes the opposite side of your trade may be a competitor who has a different outlook on the future price, it may be a floor broker, or it could be a speculator.