Commodities
Commodities, Futures & Options
Why Do We Need The Futures Markets?
The Chicago Board of Trade FAQs answers this best. The price you pay for goods and services depends to a great extent on how successful businesses are in managing risk. By using the futures market effectively, businesses can minimize their risk, which, in turn, lowers their cost of doing business. This savings is passed onto you, the consumer, in the form of lower prices for food and other commodities, or a better return on a pension or investment fund.
Highly Leveraged Contracts
Futures and Options are highly leveraged contracts. They are inherently high risk investments. Experts say serious money in the commodities market should be done by professionals. Experts do agree that having some commodities in a balanced investment portfolio can be a good thing. Futures and Options are inherently risky because the amount of the initial margin is small relative to the value of the futures contract. The result is that the transaction is highly leveraged. A relatively small market movement will have a proportionately larger impact on the funds you have deposited or will have to deposit. This could work for you in a big way…or against you in a big way. You may sustain a total loss of initial margin funds and any additional funds deposited with the firm to maintain your position. If the market moves against your position or margin levels are increased, you may be called upon to pay substantial additional funds on short notice to maintain your position. If you fail to comply with a request for additional funds within the time prescribed, your position may be liquidated at a loss and you will be liable for any resulting deficit.
Futures are legally binding agreements, made on the trading floor of a futures exchange, to buy or sell a commodity or financial instrument sometime in the future. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. The only variable is price. Options are contracts that convey the right, but not the obligation, to buy or sell a particular item at a certain price for a limited time. Only the seller of the option is obligated to perform.
National Futures Association –NFA
Futures and Options set the dynamics for global trading that exceed billions of dollars daily. In the United States, more than 4,200 firms and 55,000 associates conduct activities in the futures markets. The United States Futures community maintains its high standards by making membership in National Futures Association –NFA mandatory.
How do I register as a futures professional?
The Commodity Futures Trading Commission -CFTC has delegated registration responsibilities to the National Futures Association –NFA. If you need information on registration as a futures professional, please go to
Commodity Futures Trading Commission
The mission of the
Commodity Futures Trading Commission –CFTC is to protect market users and the public from fraud, manipulation, and abusive practices related to the sale of commodity and financial futures and options, and to foster open, competitive, and financially sound futures and option markets. Congress created in the CFTC in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States.
A Guide to The Language of The Futures Industry – CFTC Glossary
Because the definitions of many words and phrases used throughout the futures industry are not readily available in standard references, the CFTC's Office of External Affairs has compiled a very good glossary to assist members of the public in understanding the specialized words that are used in the futures and options industry.
Other Resources