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What is a Contract Market?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 November 2016
  • Copyright Protected:
    2003-2016
    Conjecture Corporation
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Contract markets are exchanges that are empowered under the laws and regulations of a jurisdiction to engage in the trading of futures and futures options. Sometimes referred to as a self regulatory organization or SRO, the contract market functions by dealing in securities and commodities, including futures trading, that are traded in accordance with the rules of conformity associated with the exchange, as well as the broader laws and regulations of the governing nation where the exchange is based.

In some instances, a contract market is known as a designated exchange. This is the case when the contract market is focused on a particular type of trading activity or commodity. One good example of a designated exchange is the Chicago Mercantile Exchange.

At times, the term “contract market” may not refer to a trading exchange, but to an actual commodity that is traded on an exchange. This type of usage is particularly common when referring to commodities such as soybeans, pork bellies, or corn. Within this context, soybeans would be referred to as a contract market, since futures trading with soybeans is very common.

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As with any type of securities trading, a contract market is subject to current financial laws and procedures imposed by the jurisdiction of residence. Along with these laws, a contract market usually imposes additional regulations that are drafted to support compliance with local laws and protect all persons who engage in the trading of futures on the market platform. These safeguards provide stability to the market, as well as protect investors from investment deals that could conceivably present a risk not considered reasonable by the laws of the land.

In general, any investor who wishes to trade futures on a given contract market should take the time to learn as much about the market and the commodities traded on the market as possible. This includes understanding federal laws that apply as well as the regulations for participation set by the particular contract market. By doing so, the investor will be in a much better position to make informed decisions about futures trading with the environment of the contract market.

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