See also: List of Futures Exchanges
A futures exchange is an institution, organization, or association that serves as a market for the trading of futures contracts. In addition to the facilitation of trading contracts, futures exchanges also serve as a clearing house for the transfer and settlement of the physical commodities underlying most futures contracts.
It should be noted that while the majority of contracts traded on a futures exchange are commodities, futures exchanges also deal in other types of contracts, usually relying on financial instruments.
Technology has been one key factor driving the industry, with almost all the established exchanges adopting electronic trading in some form or another while new generation exchange platforms are fully electronic.
One example is Singapore's pan-Asian multi-product commodity and currency derivatives exchange - the Singapore Mercantile Exchange (SMX) - which offers a comprehensive platform for trading a diversified basket of commodities including futures and options contracts on precious metals, base metals, agriculture commodities, energy, currencies and indices.
SMX offers market participants the benefits of market transparency, time zone convenience, price discovery and benchmarking, price risk management and multiple connectivity options. Counter-party clearing and settlement risk is effectively managed through its clearing house, the Singapore Mercantile Exchange Clearing Corporation (SMXCC).
The vast majority of futures contracts traded on a futures exchange are commodities futures contracts. Raw materials, such as corn, sugar and crude oil, for example, are representative of the items traded as commodities on a futures exchange. Producers of raw materials will generally sell contracts to deliver raw materials at a future point in time to a consumer that will use the raw materials to provide goods or services.
This type of trading allows both parties involved to establish the price at which they will do business. In this way a farmer whose crops are still in the field can establish the price for which those crops will be sold.