Exchanges:
The U.S. futures
markets were
developed out of
necessity in the
middle 1800's. As
the country was
expanding and
spreading west,
farmers were having
a difficult time
reaching buyers
efficiently. Farmers
would carry tons of
goods, hundreds of
miles, only to have
a prospective buyer
back out of a deal.
Quarrels repeatedly
erupted relating to
the quality,
quantity, and price
of the goods. A
central marketplace
where many willing
and able buyers and
sellers transacted
business was the
answer. Commodity
exchanges were
created to serve
this function.
The unit of exchange
that trades in the
exchanges is the
futures contract. It
provides for the
future delivery of
goods at a specified
date, time, and
place. Each
particular commodity
is bought and sold
in standardized
contractual units,
which makes them
completely
interchangeable. For
example, each sugar
futures contract for
a particular month
is the same size, is
of the same quality
and grade, and is
due for delivery at
the same day and
time.
