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A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investing in commodities. Commodity markets can include physical trading and derivatives trading using spot prices, forwards, futures, and options on futures. Farmers have used a simple form of derivative trading in the commodity market for centuries for price risk management.
In finance, a futures contract is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset transacted is usually a commodity or financial instrument. The predetermined price of the contract is known as the forward price. The specified time in the future when delivery and payment occur is known as the delivery date. Because it derives its value from the value of the underlying asset, a futures contract is a derivative.
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. Futures exchanges provide physical or electronic trading venues, details of standardized contracts, market and price data, clearing houses, exchange self-regulations, margin mechanisms, settlement procedures, delivery times, delivery procedures and other services to foster trading in futures contracts. Futures exchanges can be organized as non-profit member-owned organizations or as for-profit organizations. Futures exchanges can be integrated under the same brand name or organization with other types of exchanges, such as stock markets, options markets, and bond markets. Non-profit member-owned futures exchanges benefit their members, who earn commissions and revenue acting as brokers or market makers. For-profit futures exchanges earn most of their revenue from trading and clearing fees.
West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract traded on the New York Mercantile Exchange (NYMEX). The WTI oil grade is also known as Texas light sweet, oil produced from any location can be considered WTI if the oil meets the required qualifications. Spot and futures prices of WTI are used as a benchmark in oil pricing. This grade is described as light crude oil because of its low density and sweet because of its low sulfur content.
A currency future, also known as an FX future or a foreign exchange future, is a futures contract to exchange one currency for another at a specified date in the future at a price that is fixed on the purchase date; see Foreign exchange derivative. Typically, one of the currencies is the US dollar. The price of a future is then in terms of US dollars per unit of other currency. This can be different from the standard way of quoting in the spot foreign exchange markets. The trade unit of each contract is then a certain amount of other currency, for instance €125,000. Most contracts have physical delivery, so for those held at the end of the last trading day, actual payments are made in each currency. However, most contracts are closed out before that. Investors can close out the contract at any time prior to the contract's delivery date.
An interest rate future is a financial derivative with an interest-bearing instrument as the underlying asset. It is a particular type of interest rate derivative.
E-minis are futures contracts that represent a fraction of the value of standard futures. They are traded primarily on the Chicago Mercantile Exchange's Globex electronic trading platform. E-mini contracts were first launched in 1997 for the S&P 500 index with great success, and are now available on a wide range of stock market indices, commodities and currencies. As of April, 2011, CME lists 44 unique E-mini contracts, of which approximately 10 have average daily trading volumes of over 1,000 contracts.
In financial markets, the tick size is the smallest price increment in which the prices are quoted. The meaning of the term varies depending on whether stocks, bonds, or futures are being quoted.
Lean Hog is a type of hog (pork) futures contract that can be used to hedge and to speculate on pork prices in the US.
NASDAQ futures are financial futures which launched on June 21, 1999. It is the financial contract futures that allow an investor to hedge with or speculate on the future value of various components of the NASDAQ market index.
A crush spread is a commodity trading strategy in which the trader takes a long position in soybean futures against short positions in soybean meal futures and soybean oil futures to establish a processing margin.
Feeder cattle, in some countries or regions called store cattle, are young cattle mature enough either to undergo backgrounding or to be fattened in preparation for slaughter. They may be steers or heifers. The term often implicitly reflects an intent to sell to other owners for fattening (finishing). Backgrounding occurs at backgrounding operations, and fattening occurs at a feedlot. Feeder calves are less than 1 year old; feeder yearlings are between 1 and 2 years old. Both types are often produced in a cow-calf operation. After attaining a desirable weight, feeder cattle become finished cattle that are sold to a packer. Packers slaughter the cattle and sell the meat in carcass boxed form.
An E-micro is a futures contract traded on the Chicago Mercantile Exchange (CME) Globex electronic trading platform, that represents an even smaller fraction of the value of the normal futures contracts than the corresponding E-mini.
Dow Futures are financial futures which allow an investor to hedge with or speculate on the future value of various components of the Dow Jones Industrial Average market index. The futures instruments are derived from the Dow Jones Industrial Average as E-mini Dow Futures.
S&P 500 Futures are financial futures which allow an investor to hedge with or speculate on the future value of various components of the S&P 500 Index market index. S&P 500 futures contracts were first introduced by the Chicago Mercantile Exchange in 1982. The CME added the e-mini option in 1997. The bundle of stocks in the S&P 500 is, per the name, composed of stocks of 500 large companies.
Live cattle is a type of futures contract that can be used to hedge and to speculate on fed cattle prices. Cattle producers, feedlot operators, and merchant exporters can hedge future selling prices for cattle through trading live cattle futures, and such trading is a common part of a producer's price risk management program. Conversely, meat packers, and merchant importers can hedge future buying prices for cattle. Producers and buyers of live cattle can also enter into production and marketing contracts for delivering live cattle in cash or spot markets that include futures prices as part of a reference price formula. Businesses that purchase beef as an input could also hedge beef price risk by purchasing live cattle futures contracts.
LME Aluminium stands for a group of spot, forward, and futures contracts, trading on the London Metal Exchange (LME), for delivery of primary Aluminium that can be used for price hedging, physical delivery of sales or purchases, investment, and speculation. Producers, semi-fabricators, consumers, recyclers, and merchants can use Aluminium futures contracts to hedge Aluminium price risks and to reference prices. Notable companies that use LME Aluminium contracts to hedge Aluminium prices include General Motors, Boeing, and Alcoa.
LME Copper stands for a group of spot, forward, and futures contracts, trading on the London Metal Exchange (LME), for delivery of Copper, that can be used for price hedging, physical delivery of sales or purchases, investment, and speculation.
LME Nickel stands for a group of spot, forward, and futures contracts, trading on the London Metal Exchange (LME), for delivery of primary Nickel that can be used for price hedging, physical delivery of sales or purchases, investment, and speculation. Producers, semi-fabricators, consumers, recyclers, and merchants can use Nickel futures contracts to hedge Nickel price risks and to reference prices. As of December 31, 2019, LME Nickel is associated with 153,318 tonnes of physical Nickel stored in 500 LME approved warehouses around the world. This is 5.67% of the 2019 global estimated mined Nickel production of 2.7 million tonnes. Despite the low share of physical Nickel associated with LME Nickel contracts, global physical Nickel transactions are usually based on LME Nickel prices. This practice began in the 1970s to 1982, when producer Nickel prices, especially Canadian producer prices collapsed, and the industry switched to LME prices.
LME Zinc stands for a group of spot, forward, and futures contracts, trading on the London Metal Exchange (LME), for delivery of special high-grade Zinc of 99.995% purity minimum that can be used for price hedging, physical delivery of sales or purchases, investment, and speculation. Producers, semi-fabricators, consumers, recyclers, and merchants can use Zinc futures contracts to hedge Zinc price risks and to reference prices.
References
- ↑ CME Group
- ↑ CME Australian Dollar contract specifications
- ↑ CME 10-year Note contract specifications
- ↑ CME Silver contract specifications
- ↑ "CME COMEX miNY Silver contract specifications". Archived from the original on 2010-04-16. Retrieved 2010-06-21.
- ↑ CME E-mini Crude Oil contract specifications
- ↑ CME E-mini Natural Gas contract specifications