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What Are Futures and Derivatives

A ‘Future’ is an agreed contract for the sale or purchase of an asset, currency or commodity at a future date. This financial instrument came about to provide a kind of insurance to the producers so that they did not go out of business when there might be a poor harvest, for example.

After intense lobbying, the US Commodity Futures Trading Commission relaxed the rules surrounding the market in 1999. Banks such as Barclays, Deutsche Bank and JP Morgan, could now hold as large a ‘position’ in food futures as they liked. Previously they could not. A traders ‘position’ is the balance of (long futures contracts) ‘promises to buy’ minus ‘promises to sell (short contracts). Read more