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Introduction

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Originally, the stock market was created as a way for companies to raise capital. By exchanging ownership in a company for cash, early business ventures were able to raise capital to buy equipment or build factories. Companies hundreds of years ago, as well as today, primarily use the stock market as a means to raise capital.

The modern futures market evolved not from a need to raise capital, but from a need to transfer risk. The futures market makes it possible for those who want to manage price risk (hedgers) to transfer that risk to those who are willing to accept it in the hopes of a profit (speculators).

Futures markets are first and foremost a risk transference vehicle. They also provide price information that the world looks to as a benchmark in determining the value of a particular commodity or financial instrument on any given day or at any specific time of the day. These benefits, risk transference and price discovery, reach every sector of the world economy where changing market conditions create economic risk in the diverse fields of agricultural products, foreign exchange, imports, exports, financing, and investment vehicles.