Furor (fyoor'or) n. 1. Violent anger; frenzy. 2. A state of intense excitement. 3. A public uproar.

From the view on the visitor's gallery, activity at a commodity exchange can appear to be any or all of these things. At the Kansas City Board of Trade (KCBT), we prefer to think of it in terms of definition number two. We are proud of our industry and the ways in which it contributes to society.

While the action on the trading floor often does reflect "a state of intense excitement," there is much more than just yelling and arm-waving to get excited about. Futures and options trading have an important role to play in business and the economy worldwide. So read on to find out more about the furor on the floor.

WHAT IS THE KANSAS CITY BOARD OF TRADE?

It's a place where buyers and sellers gather to trade commodities - commonly known as a commodity exchange. Specifically at the KCBT, futures and options contracts are traded on hard red winter wheat and the Value Line® Index, a equally-weighted index of approximately 1,650 stocks.

Traders of futures and options contracts can lock in a purchase price or sale price for a commodity in advance, reducing the business risks faced as a result of volatile prices. This process is known as "hedging."

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WHAT IS A FUTURES CONTRACT?

A futures contract is an agreement between a buyer and a seller to make or take delivery of a product at a specific future date. The agreement specifies price, quantity, and the month of delivery.

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WHAT ARE OPTIONS?

Options are contracts that offer the right to take a futures position but do not require the position to be taken. A "put" gives you the opportunity to take a short futures position (sell) and provides protection against downward price movement. A "call" gives you the opportunity to take a long position (buy) and protects against upward price movement.

Options can be used as insurance for a business against price moves that might adversely affect the bottom line.

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WHAT DETERMINES THE PRICE?

The prices of contracts traded at the KCBT are determined by supply and demand. The exchange itself does not determine prices, but simply provides a place where buyers and sellers can negotiate. If there are more buyers than sellers, the price goes up. If there are more sellers than buyers, it goes down.

Many different factors can affect the amount of buyers and sellers, such as weather happenings that alter production or demand outlook, major world news events or even charting methods used as an indicator of where prices may move next.

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WHO USES THE KCBT?

Commercial interests - those who buy, sell, or mill wheat - dominate KCBT hard red winter wheat trading. They use the contracts to lessen the risk of adverse price moves against wheat they buy or sell in the cash market. This process is called "hedging."

However, some traders at the KCBT neither own nor plan to take delivery of wheat. Their sole purpose is to accept price risk, hoping to make a profit. These traders are called "speculators." Speculators are crucial to any market because they inject capital and assure that hedgers have someone to trade with.

In the Value Line pit, the same types of traders are found. They include hedgers trying to lay off risk as well as speculators who want to capitalize on market moves.

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HOW DO FUTURES CONTRACTS AT THE KCBT AFFECT ME?

If you eat, you're affected by the KCBT or another agricultural commodity exchange. The wheat futures contracts traded at the KCBT contribute to the steady flow of products from the farm to your dinner table.

Investing in the stock market? The Kansas City Board of Trade's Value Line is a leading market indicator.

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WHY DO TRADERS YELL AND WAVE THEIR ARMS?

Futures trading appears manic. Yet traders are communicating with a special language as they yell and wave their arms. Traders use a series of hand signals and a type of verbal short-hand to indicate whether they're buying or selling and at what price. They yell because they need to be heard in the loud, competitive environment of the trading pit. The yelling and arm-waving that occurs in the pit represents the purest example that exists of a competitive free market - buyers and sellers meeting face to face, negotiating price.

This method of trading is called "open outcry" and distinguishes commodities trading from stock trading. Contrary to some opinion, prices are not "set" at a futures market; the price is simply what a buyer is willing to pay and what a seller is willing to accept. The "open outcry" system enables buyers and sellers to hear all available bids and offers; similar to an auction but in this case every trader is also his own auctioneer. All trades occur on the KCBT trading floor; traders cannot conduct business unless they are in the trading "pits."

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WHY DO TRADERS WEAR BRIGHT JACKETS?

Traders wear brightly colored jackets to attract attention. They may need to grab someone's eye during hectic trading activity, and the color may be enough to do the job.

In some cases, jackets of a particular color indicate traders are affiliated with a particular company.

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HOW DO TRANSACTIONS OCCUR?

Orders to buy and sell are generated by individuals or by trading desks at brokerage or grain firms. Orders tell the broker what quantity and contract month to trade and can indicate the price at which the broker should do business. Often, orders do not list a price; these "market" orders mean the broker should buy or sell at the best possible price.

Other times, the orders tell the broker to do business under certain conditions. For example, a "MOC," or market-on-close order, directs the broker to fill the order only in the final 30 seconds of trading. "Fill or kill" means the order should be filled immediately, or it will be killed (cancelled).

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WHO KEEPS TRACK OF WHAT IS GOING ON?

Each trader records his trades as they occur. On trading cards identified individually with his initials, the trader notes whom he traded with, whether he bought or sold, the quantity, the delivery month, price, and time of the transaction.

This information is then submitted to the KCBT Clearing Corp. for proper matching of trades.

Traders must follow exchange rules and regulations, and the KCBT has its own audits and investigations department that monitors activity. There also is a branch of the federal government that regulates futures trade.

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WHAT IS THE CLEARING CORP.?

The Clearing Corp. is a clearing house for trading activity, protecting the integrity of the market. It acts as the buyer to every seller and the seller to every buyer, allowing each trader to buy and sell independently.

For example, a trader who bought a futures contract today but decides to sell the contract later doesn't have to worry about whether the original seller wants to buy it back.

At the end of each day, the Clearing Corp. matches purchases and sales. Gains are paid from the accounts of clearing member firms incurring losses. Losses require the additional deposit of funds before the start of the next day's trading. The books are balanced daily so that each trading session represents a clean start, with no money owed and no money due.

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HOW DO YOU BECOME A KCBT MEMBER?

The people gathering to trade at the KCBT are members of the exchange. To become a member, you must meet the exchange's financial and character requirements.

There are two types of membership at the KCBT: Class A, or full membership, and Class B, or associate membership.

A basic market fundamental - supply and demand - affects membership prices just as it affects wheat or stock market prices. People who want to become KCBT members bid for "seats" on the exchange; owners offer seats at prices they want. Memberships also may be leased.

The KCBT has about 240 members.

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WHO RUNS THE KCBT?

The members. They elect a board of directors, and the board then appoints committees to manage most aspects of running the exchange - from establishing proper conduct guidelines for members to follow while in the trading pit to budgeting to establishing trading rules.

KCBT employees ensure that day-to-day exchange operations run smoothly.

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HOW DID THE KCBT ACHIEVE PROMINENCE?

The Kansas City Board of Trade is located near one of the most productive wheat-growing regions in the world - the Great Plains. Its history and growth are tied closely to that of Kansas City, an important trade center during settlement of the American West and a world agribusiness center today.

A "grain call," similar to wheat futures trading as it is known today, was established at the KCBT in 1876.

The wheat futures contract and the exchange have endured two world wars, the Depression and several recessionary periods. KCBT's wheat futures contract provided price protection for wheat growers and traders during those times and continues to offer stability amid uncertain U.S. government farm policy and changing supply and demand conditions.

The innovative traders at the KCBT introduced the first stock index futures contract ever, the Value Line®, in February 1982.

The stock index futures concept became reality only after lengthy legal and regulatory battles. Since then, exchanges all over the world have followed suit with their own stock index futures contracts. Stock index futures are considered one of the most important financial market concepts of recent years.

In October 1984 the KCBT introduced options on its wheat contract, and in July 1992 it launched options on the Value Line.

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HOW CAN I LEARN MORE ABOUT THE KCBT AND FUTURES TRADING?

The KCBT offers information designed to help you learn more about futures trading and the exchange. Informational brochures can be ordered on this site. You can also contact us by email at kcbt@kcbt.com, or write, fax or call us at:

Kansas City Board of Trade
Marketing Department
4800 Main St. Suite 303
Kansas City, MO 64112
phone: 800-821-5228
fax: 816-753-3944

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Value Line® is a registered mark of Value Line, Inc., a New York corporation that provides financial services and publications. Since 1982, the Kansas City Board of Trade has been licensed to use the Value Line® mark in connection with its efforts to establish futures markets tied to the Value Line® index. The Kansas City Board of Trade and Value Line, Inc. are not affiliated corporate entities.