Financial futures are contracts based on underlying financial instruments. There are futures trading opportunities in interest-rate sensitive instruments such as U.S. Treasury bonds, stock futures, such as the Standard & Poor’s 500® Index, or forex, such as the Japanese yen.
Like all futures markets, a financial futures contract specifies a specific quantity of the underlying financial instrument at a market-determined price. They can be settled via cash or physical delivery, depending on the instrument. Supply and demand factors determine pricing, and while common fundamentals often influence many markets globally, there are also factors that are unique to each particular market.
Financial futures were developed amid a rapidly growing trend toward globalization in the world’s investment and economic landscape starting in the early 1970s. They were designed to meet new needs and risks that businesses, governments, and individuals faced amid changing capital flows. Even though they have a shorter history than agricultural futures, they now dominate the exchange-traded product offerings. Today, the majority of activity in trading futures globally is in contracts on financial investments, and futures exchanges are continually on the lookout for new successes in this category.