Commodities and Futures Guide.com

The futures and commodities markets are two vital parts of the investment world but represent two very different things altogether. Commodities markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized contracts. The futures market is an auction market in which participants buy and sell future contracts for delivery on a specified future date. Trading is carried on through open yelling and hand signals in a trading pit.

A commodities market serves the purpose of allowing two individuals to exchange the rights to goods without visual inspection. Commodity markets require the existence of agreed standards opposed to spot markets where delivery either takes place immediately, or with a minimum lag and normally involves visual inspection of the commodity or a sample of the commodity. A forward contract is an agreement between two parties to exchange at some fixed future date a given quantity of a commodity for a price defined today (buy now, pay later). Forward contracts have evolved and have been standardized into what we know today as futures contracts.

A futures contract is a type of derivative instrument, or financial contract, in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. If you buy a futures contract, you are basically agreeing to buy something that a seller has not yet produced for a set price. But participating in the futures market does not necessarily mean that you will be responsible for receiving or delivering large inventories of physical commodities – remember, buyers and sellers in the futures market primarily enter into futures contracts to hedge risk or speculate rather than to exchange physical goods.

That is why futures are used as financial instruments by not only producers and consumers but also speculators. The futures market allows buyers and sellers an opportunity to manage price risks for goods they will either need to purchase or sell at a later date. An example is Boeing utilizing the futures market to hedge against an increase in the cost of aluminum at a later date which is a major component in the manufacture of an aircraft (i.e. hedging).Unlike a stock, which represents equity in a company and can be held for a long time, if not indefinitely, futures contracts have finite lives.

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Our team has come up with an article on the currency futures where it discusses about the know hows of the currency market futures their delivery, contract size ,average volume traded on a daily basis as well as the maturity.Moreover concepta like how the investors use currency as a tool to hedge their exposure as well as speculate the future position and invole in trades.

Currency futures is done on the foreign exchange market/currency/forex/or FX. FX transactions typically involve one party (usually a bank or other official institution) purchasing a quantity of one currency in exchange for paying a quantity of another. The FX market is one of the largest and most liquid financial markets in the world. The trading takes place between large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and related markets is continuously growing and the average daily turnover is around $3.98 trillion US.

Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates- agreed upon price at an agreed upon future date. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts. Typically, one of the currencies is the US dollar.

Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in the currency of the underlying contract. Investors can close out the contract at any time prior to the contract’s delivery date and most contracts are closed out before the actual delivery date.

Investors use these futures contracts to hedge against foreign exchange risk. If an investor will receive a cash flow denominated in a foreign currency on some future date, that investor can lock in the current exchange rate by entering into an offsetting currency futures position that expires on the date of the cash flow. Basically, an investor can lock in the value of the transaction at today’s exchange rates.

Currency futures can also be used to speculate and, by incurring a risk, attempt to profit from rising or falling exchange rates. In this manner, an investor can speculate on a specific currency becoming weaker or stronger compared to the US dollar at a future date.

Currency futures are not to be confused with currency markets. Futures based upon currencies are similar to the actual currency markets, but there are some significant differences. For example, currency futures are traded via exchanges, such as the CME (Chicago Mercantile Exchange), but the currency markets are traded via currency brokers, and are therefore not as controlled as the currency futures.

FUTURES CONTRACTS

Futures: special forms of forward contracts that are designed to reduce the disadvantages associated with forward agreements. Indeed, they are Forwards whose terms have been STANDARDIZED to that they can be traded in a public marketplace. Less flexible, but more liquid.

• Usually traded on FUTURES exchanges, who establish terms of standardization, rules or Pit trading, daily price limit, trading hours, and settlement price methods.

• Regulated by the CFTC (Commodities Futures Trading Commission).

• Brokers: Account Executives who take orders from customers and relay them to the floor; and Floor Brokers who operate on the floor and execute orders for others and for themselves.

• CLEARINGHOUSE: interposed between each side and guarantees the contract.

• POSTING MARGIN, MARKING TO MARKET
• Capital Gains are based upon the NET DAILY SETTLEMENT gains or losses that occur in a tax period, rather than upon the net gains or losses that result form contracts that are closed out during a tax period.
• FUTURES is a ZERO sum GAME

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Here is a list of futures brokers list which our team has found when we were researching about the commodities brokers. One can also learn more about quotes, charts and brokers by market type.

To learn more about the brokers and their services offered click here. For details about fund administration and hedge fund administration click here or here