Winning With Liquid Alternatives by Norman Mains

Author:Norman Mains
Language: eng
Format: epub
Publisher: McGraw Hill LLC
Published: 2014-01-15T00:00:00+00:00

Futures Contract Trading

The long history of futures trading can be traced back to seventeenth-century Japan, although there is some evidence that there also may have been rice futures traded in China as long as 6,000 years ago. Trading in futures contracts is a natural outgrowth of problems associated with maintaining a year-round supply of seasonal products such as rice, wheat, or corn. In the United States, the first organized commodity exchange was the Chicago Board of Trade (CBOT), and it began operating in 1848. Like many futures contracts, the CBOT’s corn contract started as a forward contract. Farmers in the greater Chicago area began storing their corn in warehouses along the Chicago River. Farmers were given receipts for their corn, and both farmers and commercial agents began trading these receipts.

The CBOT provided a centralized place for buyers and sellers to transact these forward contracts. A forward contract is a nonstandardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on today. This is in contrast to a spot contract, which is an agreement to buy or sell an asset today. In a forward contract transaction, the party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. The price agreed on is called the delivery price, which is equal to the forward price at the time the contract is established.

The Role of the Chicago River

Few individuals visiting or even living in Chicago realize the historical importance of the Chicago River. The river demarks the loop area from the north side of the city, and it is an attractive waterway from Lake Michigan to about a mile west (Wolf Point), where it divides into a North and South Branch. The North Branch meanders unremarkably up through several suburban areas, including the Chicago Botanic Gardens, and is known locally as the Skokie Lagoons. The South Branch is equally unremarkable except that it eventually runs into an area named the Chicago Portage. The early European explorers Louis Joliet and Father Jacques Marquette were canoeing upstream on the Mississippi River. They were guided to the Chicago Portage by local Native Americans after paddling along the Illinois and Des Plaines Rivers. They eventually encountered a swampy area known as Mud Lake, a muddy swamplike area that connected the Des Plaines River to the Chicago River. The Native Americans knew that they could portage their canoes around Mud Lake and thereby have a route that connected the Great Lakes to the Mississippi River.

Early Chicagoans built a canal, the Illinois and Michigan Canal, through the area, and this created a transportation waterway that eventually connected the Atlantic Ocean to the Gulf of Mexico. This mode of transportation was a principal reason that Chicago grew quickly and eventually eclipsed St. Louis as the jumping-off point to the American West. Some years after the canal was built (1900), engineers permanently reversed

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.