Stocks,
bonds,
and currencies are the
commodities
of the investment business. Just as farmers, mining companies, and jewelry manufacturers can be dramatically affected by changes in the price of corn, copper, and gold, so changes in interest rates, currency value, and the direction of the stock market can have enormous impact on the financial community. There are four categories of financial futures: foreign currency, stock indexes, interest rates, and single stocks. The first
financial futures,
based on underlying foreign currencies, began trading in 1972. Interest rate futures followed in 1975, stock index futures in 1982, and in 2002 single stock futures were introduced to the market.
The same and different
The financial futures market trades financial commodities in the same way consumable commodities such as pork bellies and oil are traded. The key difference between financial futures and other futures is the intangibility of most of the products. Stock indexes and interest rates have no actual physical or accountable existence, which means there is nothing to deliver if the contract is not offset. Instead, these contracts are settled in cash if they’re not offset.
