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What Is Futures Trading?

Futures trading is the practice of trading commodities. Any institution or market that adopts the trading mechanisms referred to in the preceding paragraph or bears the features of either of the trading mechanisms referred to in the preceding paragraph before the implementation of the present Regulation shall make a rectification within the time limit as provided for by the commerce competent authority of the State Council.
For example, while a current barrel of oil may trade at $75 per barrel, a futures contract with a strike price of 75$ may have a different value because the price of a barrel of oil may change between now and the expiration date, and the holder of the contract would face a profit or loss based on that potential change.



Article 67 Any of the personnel of the futures regulatory institution of the State Council, or a futures exchange, institution monitoring the safe custody of futures margin or custodian bank of futures margins shall be devoted to their duties, impartial and clean, and act according to laws, and shall keep the secret of the state as well as the commercial secret of the related party concerned, may not take advantage of his position to seek illegitimate gains.
Article 86 The futures regulatory institution of the State Council may approve the establishment of a exclusive settlement institution that is emini futures exclusively responsible for the settlement of futures exchanges, performs other related duties and bears the legal liabilities accordingly.

Article 81 Where an entity or individual is in violation of the present Regulation, in case of any serious circumstances, this individual, this entity or the directly liable persons of this entity shall be prohibited to enter the futures market as announced by the futures regulatory institution of the State Council.
Article 11 A futures exchange shall establish and perfect the following systems for risk control under related provisions of the State: (1) The margin system; (2) The mark to the market system; (3) The system of price limits; (4) The system of position limits as well as reports of big position holders; (5) The systems of the risk reserve; and (6) Other risk control systems as provided for by the futures regulatory institution of the State Council.
Unlimited liability means that a strict stop loss and risk management policy needs to be in place when trading futures and that kind of sophistication may be lacking in new futures traders, which is one of the factors that makes futures trading risky for most beginners.

The types of assets that underlay futures contracts range from physical commodities like oil, gold or wheat to financial futures like currencies, securities or financial instruments (U.S. Treasure Bills), or intangible assets like a stock index and interest rates.
Futures traders are traditionally placed in one of two groups: hedgers , who have an interest in the underlying asset (which could include an intangible such as an index or interest rate) and are seeking to hedge out the risk of price changes; and speculators , who seek to make a profit by predicting market moves and opening a derivative contract related to the asset "on paper", while they have no practical use for or intent to actually take or make delivery of the underlying asset.

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