Importance of Futures Market

Table of Contents
Chapter 1: What is Futures Trading
Chapter 2: How Futures Trading Works
Chapter 3: Futures Terminology
Chapter 4: Importance of Futures Market
Chapter 5: Limitations on Futures Trading
Chapter 6: Factors Affecting Futures
Chapter 7: Who Should Use Futures Trading
Chapter 8: How to Start Trading in Futures and Be Successful

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Chapter 4: Importance of Futures Market

Chapter 4: Importance of Futures Market

The futures market is a critical part of a strong economy. It has many roles to play and fulfills different requirements of the various market players involved. Here are some reasons why the futures market is important to the economy.

  • The primary advantage of futures is that it allows individuals and businesses to protect their positions against price fluctuations. For the buyer, it offers protection from future price increases and for the seller, it offers protection from prices falls.
  • By allowing the people to set a future sale prices, the future contract also helps in forecasting prices.
  • Futures help in setting manufacturing goals as they allow businesses to assess the future demand and price for a product. Businesses get a better control over prices by limiting production to cover only the expected demand. They also avoid the losses that can arise out of surplus production, which includes storage of the excess produce and depreciation in quality over time.
  • Competitive pricing is facilitated by futures trading and this keeps a balance in prices of the future traded commodities in the market. The huge number of transactions that take place on a daily basis in the futures market brings price stability.
  • Futures trading creates a global marketplace by bringing together consumers, manufacturers and speculators from various countries. It enables buyers and sellers in different countries to insulate themselves against price fluctuations because the contract can be completed without physical delivery of the goods.

Next Chapter: Limitations on Futures Trading