To eliminate limitations of forward contracts, in 1848, Chicago board of trade (CBOT) was formed to provide centralized location for such trades.
In 1865, CBOT listed the first futures contract. In 1919 Chicago Mercantile exchange (CME) was recognized to allow futures trading.
CBOT & CME remain the two largest futures exchanges in the world.
The most popular and heavily traded futures contract is based on S&P 500 Index.
FUTURES CONTRACTS
- These are centrally traded in an exchange and you need not know the opposite party.
- These are standardized in terms of market lots and expiry dates.
- These are highly liquid.
- No counter-party risk as the clearing corporation assumes the risk.
- Not necessary to hold until maturity or expiration.