Chapter One: The Past and Present of Futures Trading
The futures market, as the name suggests, refers to the market for futures contracts. Its origins trace back to Europe. As early as the times of ancient Greece and Rome, there were centralized trading venues, bulk barter transactions, and trade activities resembling futures trading. The earliest futures trading evolved from forward transactions of spot goods. The first modern futures exchange was established in Chicago, USA, in 1848, and by 1865 it had set the standard contract model. In the 1990s, China’s modern futures exchanges emerged. Today, China has four major futures exchanges: the Shanghai Futures Exchange, Dalian Commodity Exchange, Zhengzhou Commodity Exchange, and China Financial Futures Exchange. The price fluctuations of the futures contracts listed on these exchanges have had profound impacts on related industries both domestically and internationally.
The English term “Futures” derives from the word “future,” meaning that the two parties involved in the trade do not have to settle the actual goods at the time of the transaction but agree to deliver the goods at a specified future date. Hence, in China, this is called “futures.” Apart from foreign exchange, futures are the largest form of trading instruments.
On October 12, 1990, with approval from the State Council, the Zhengzhou Grain Wholesale Market was established, laying the foundation for China’s futures market development by introducing futures trading mechanisms alongside spot trading. On May 28, 1991, the Shanghai Metal Commodity Exchange opened. On June 10, 1991, the Shenzhen Nonferrous Metals Exchange was founded. In September 1992, the first futures brokerage firm, Guangdong Wantong Futures Brokerage Company, was established, marking the revival of China’s futures market after a 40-year hiatus. On February 28, 1993, the Dalian Commodity Exchange was founded. In August 1998, the Shanghai Futures Exchange was created through the merger of the Shanghai Metal Exchange, Shanghai Grain and Oil Commodity Exchange, and Shanghai Commodity Exchange, officially commencing operations in December 1999. The China Financial Futures Exchange was established on September 8, 2006. On April 16, 2010, China launched its first domestic stock index futures—the CSI 300 Index futures contract. On April 15, 2011, the Dalian Commodity Exchange introduced the world’s first coke futures contract. On December 3, 2012, the Zhengzhou Commodity Exchange launched the first glass futures contract.
In simple terms, futures trading is somewhat like stock trading, allowing investors to go long or short. However, unlike stocks—which involve shares of listed companies—futures are based on actual commodities such as cotton, soybeans, coal, ores, rubber, sugar, and so forth. Futures trading involves leverage. Put simply, leverage amplifies gains and losses. For example, with triple leverage, a 30% loss would liquidate your position unless additional margin is deposited, while a 30% gain could double your principal. But the most crucial aspect is the precise prediction of future price movements. Some have become overnight millionaires through this, while others have lost everything. In the blink of an eye, the cultural commodity market—the futures market’s main index—is about to celebrate its 26th anniversary (the story is set in 2019). Just days ago, the main index had been falling and fluctuating for a long time. Major funds in various sectors have already exited and begun short selling—betting on the decline by borrowing assets to sell high and repurchasing at a lower price, thus profiting from the downturn. (For those unfamiliar, a quick online search will explain this further.)
Our protagonist’s story begins here.
At this moment, outside the gate of a vocational school, a student dressed in a blue school uniform timidly wheeled a suitcase out. This is Li Fengyu, our protagonist. Around him, many other students were gradually leaving as well—today marked the start of the winter vacation for this school.
Li Fengyu lives in the city center of X City, FB Province. Born in 2004, he enjoys playing video games like many others. His appearance is unremarkable: dull eyes, a small mouth, glasses, and standing about 1.8 meters tall. In junior high, he was seriously unbalanced academically, interested only in history, politics, and Chinese language. As a result, he failed to qualify for general high school and lacked any particular dreams. His sole passion was sleeping. At this moment, his parents had come by car to pick him up, and from this day forward, his life was about to embark on a completely different path.