Futures contracts are standardized contracts where the amount, quality, type, place, and the delivery time has been set in advance. Because of its standards, then the negotiations left was just the price alone. Performance or fulfillment Futures Contract in accordance with the specifications set forth in the contract, secured by a special agency namely Clearing House.
Under Law No.32/1997 on the Commodity Futures Trading, futures trading is everything related to buying and selling commodities with later delivery on Futures Contracts and Options on Futures Contracts.
Futures trading is conducted on the Futures Exchange to trade commodities futures contracts. A place to trade the futures contract is also called the futures market. Commodity prices are established in Bursa/Exchange, took place in a transparent manner. Thus, the price would reflect the strength of the actual supply and demand.
Transactions in the Exchange are done by the Members, consisting of Futures Brokers and Traders, either by shouting (open outcry) or done electronically (automated/electronic trading system). These transactions are recorded according to each delivery month of the futures contract, and published widely to the public.
Two major benefits of the implementation of commodity futures trading is as a means of managing risk (risk management) through hedging activities, and as a means to form prices (price discovery).
With hedging activity, prices of primary commodities which often fluctuates due to heavy influence of the natural factors such as abnormalities of the season, natural disasters, etc., impact (risk) due to price fluctuations can be reduced to a minimum.
The second benefit is as a means of forming transparent and reasonable price which reflect the actual supply and demand of the commodities traded. Itn is possible because transactions are done by/through the exchange members, representing the client or himself, and there is no identity disclosure between buyers and sellers of futures contracts. The contract prices resulted in the Exchange in general serve as a reference price by the business community, including farmers and producers/entrepreneurs to conduct transactions in the physical market.
Commodity that is the subject of futures contract traded on the Futures Exchange, is from agriculture, forestry, mining, upstream industries, financial products and services.