The Kansas City Board of Trade (KCBT) is a place where buyers and sellers gather to trade their commodities. That KCBT they get together to buy and sell hard red winter wheat, the Value Line Index, natural gas, and the ISDEX Internet stock index. Future and options contracts can be lock into a purchase price or sale price in advance, which lowers the risk of volatile prices. This is known as hedging. Future contracts are agreement between a buyer and seller to deliver a product for a certain date in the future. When these contracts are made the price, quantity, and delivery date have already been preset. In option contracts he gives the buyer or the seller to take hold of the product in the future, but isn't required. In dealing with option contracts you have to look at a few words, in order to understand what going on. First you have "put", which gives you a chance to take short futures position of product, so you don't worry about downward price movement. Second you have "call", which gives you a chance to take long futures position of product, so you don't worry about upward price movement. Either way, businesses use option contracts as insurance to protect the bottom line. Just like anything else the prices of these contracts are determined by supply and demand. If you have more buyers then sellers, the price goes up. If you have more sellers than buyers, the price goes down. .
When trading is taking place you notice the traders yell and wave their arms. Why is this you ask? It may seem the are acting silly, but they are actually communicating with a special language. They have series of hand signals and type of verbal shorthand to indicate whether buying or selling and at what price. They yell so they can be heard in the loud trading pit. These actions are called "open outcry", which enables all buyers and sellers to hear all available bids and offers. All trading must be made in the pit.
