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Contract are standardized except for the price, which is discovered via the supply (offers) and the demand (bids). This price discovery process occurs through an exchange’s electronic trading system or by open auction on the trading floor of a regulated commodity exchange.

CBOT Corn, Wheat, Soya, Soya Oil, Soya meal

All contracts are ultimately settled either through liquidation by an offsetting transaction (a purchase after an initial sale or a sale after an initial purchase) or by delivery of the actual physical commodity.

An offsetting transaction is the more frequently used method to settle a futures contract. Delivery usually occurs in less than 2 percent of all agricultural contracts traded.

Exchange Functions

The main economic functions of a futures exchange are price risk management and price discovery. An exchange accomplishes these functions by providing a facility and trading platforms that bring buyers and sellers together. An exchange also establishes and enforces rules to ensure that trading takes place in an open and competitive environment. For this reason, all bids and offers must be made either via the exchange’s electronic order-entry trading system, such as CME Globex, or in a designated trading pit by open auction.

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