An Introduction to Futures Assets

Investors have access to a wide range of futures assets to choose from, to name a few: treasuries, S&P 500 futures, coffee, and crude oil.

Overview of Futures Assets

Originally, farmers used futures trading as means of gaining some financial security over the harvest of the following year. In the 1840s, farmers from the Midwest came to Chicago in search of a fair price for their wheat, which is where the large commodity markets got their start. From there, farmers and dealers devised methods to trade future crop contracts, giving farmers a hedge or some protection on their investment.

Crude oil and other energy derivatives, such as heating oil and gasoline, are currently the most traded commodities. With a market share of roughly 17%, the agriculture industry is far behind. The largest energy trading platform, NYMEX, is a member of the CME Group and offers products covering coal, natural gas, and crude oil. Moreover, the mining industry is supported in part by the significant metals trade, which is dominated by base metals like copper and gold.

Futures trading has expanded far beyond basic commodities to encompass products related to equities, interest rates, and foreign exchange. The six primary futures trading categories are displayed in this table:

Agriculture	Energy	Metals	Forex	Rates	Equities
Grains	Oil	Gold	Euro/$	Treasuries	S&P 500
Livestock	Heating oil	Silver	GBP/$	Money markets	Nasdaq 100
Dairy	Natural gas	Platinum	Yen/$	Rate swaps	Nikkei 225
Forestry	Coal	Base metals	Euro/Yen	Barclays Index	E-mini S&P

Leading Futures Markets

Equity Futures

As investors seek to protect themselves against market volatility, the trade of equity futures has grown significantly in recent years. Since S&P 500 Index futures contracts offer a window into the general direction of global markets, many market participants start their day by examining the performance of these products.

With equity futures, traders may be able to add an additional degree of security to their overall trading plan. Investors can use more leverage with stock futures, which means they require less money upfront to trade the securities. Additionally, equity futures trade continuously, enabling investors to enter a position either before or after markets close.

Forex Futures

With over $5 trillion being exchanged every day, the foreign exchange market is the largest in the world. One important derivative of this market is forex futures. Although the CME is the largest currency futures market, contracts are traded globally on Eurex and the Intercontinental market.

If businesses anticipate a sizable foreign currency payment, they may utilize forex futures to control risk. For example, if a U.S. firm is awaiting a considerable sum from a Canadian company in six months, it can buy a futures contract to protect against any deterioration in the Canadian dollar.

Forex markets, like all futures contracts, draw speculators who wager on the market’s intraday movements. Because day trading increases market liquidity, long-term investors can more easily enter and exit their futures contracts.

Interest Rate Futures 

Another important area of global markets is interest rate futures trading. Interest rate futures come in a variety of instruments, but the U.S. Treasury offerings dominate the sector.

Supply and demand may affect commodity futures, and economic concerns may influence equities futures economic concerns. Interest rate futures are also impacted by changes in borrowing costs. For example, if the Federal Reserve ratchets up interest rates in the U.S., the price of bonds and Treasury will likely fall.

Summary

Understanding the range and basic operations of the many different types of futures assets and markets is useful knowledge for investors and traders when building their futures portfolio or when monitoring the results of automated futures investing strategies.