One of the most popular day trading vehicles are financial contracts called derivatives. Derivatives get their prices from the prices of an underlying asset.

There are 3 main types of derivatives:

Futures: a contract that gives you the obligation to purchase something at a future date for an agreed price. Futures are commonly used by farmers to lock in the price of their crops so they have some protection against price fluctuations, and  also by importers and exporters who can reduce their risk of currency fluctuations by locking in exchange rates before importing or exporting.

Options: a contract which gives you the option/right to buy or sell something at any time up to a future date for a fixed price. The buy option is called a call and the sell option is called a put. So if you think the price of an asset is going up, you would buy a call or sell a put on that asset (or even do both).  If you thought the price was going down, you would buy a put or sell a call.

These two derivatives are the most common but a third is also used: Stock Warrants. Stock Warrants are issued by a company instead of an exchange and gives you the option to buy more stock of the company at a future date for a fixed price, quite like options.

Options Markets:

• The most important and biggest options market in the US is the CBOE or Chicago Board Options Exchange where options on stocks are traded.
• NYBOT (New York Board Of Trade) for coffee, sugar and cocoa
• NYMEX (New York Mercantile Exchange for metals and petroleum
• CBOT (Chicago Board Of Trade) for corn, wheat, soybeans etc
• CME (Chicago Mercantile Exchange) for cattle, pork bellies etc