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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.
Contango is a situation in which the futures price of a commodity is higher than the expected spot price of the contract at maturity. In a contango situation, arbitrageurs or speculators are "willing to pay more [now] for a commodity [to be received] at some point in the future than the actual expected price of the commodity [at that future point]. This may be due to people's desire to pay a premium to have the commodity in the future rather than paying the costs of storage and carry costs of buying the commodity today." On the other side of the trade, hedgers are happy to sell futures contracts and accept the higher-than-expected returns. A contango market is also known as a normal market or carrying-cost market.
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 or delivery 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.
The Goldman Sachs Group, Inc. is an American multinational investment bank and financial services company. Founded in 1869, Goldman Sachs is headquartered in Lower Manhattan in New York City, with regional headquarters in many international financial centers. Goldman Sachs is the second largest investment bank in the world by revenue and is ranked 55th on the Fortune 500 list of the largest United States corporations by total revenue. In Forbes Global 2000 2023, Goldman Sachs ranked 34th. It is considered a systemically important financial institution by the Financial Stability Board.
A commodity price index is a fixed-weight index or (weighted) average of selected commodity prices, which may be based on spot or futures prices. It is designed to be representative of the broad commodity asset class or a specific subset of commodities, such as energy or metals. It is an index that tracks a basket of commodities to measure their performance. They are similar to stock market indices but track the price of a basket of specific commodities. These indexes are often traded on exchanges, allowing investors to gain easier access to commodities without having to enter the futures market. The value of these indexes fluctuates based on their underlying commodities, and this value can be traded on an exchange in much the same way as stock index futures.
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.
In options trading, a box spread is a combination of positions that has a certain payoff, considered to be simply "delta neutral interest rate position". For example, a bull spread constructed from calls combined with a bear spread constructed from puts has a constant payoff of the difference in exercise prices assuming that the underlying stock does not go ex-dividend before the expiration of the options. If the underlying asset has a dividend of X, then the settled value of the box will be 10 + x. Under the no-arbitrage assumption, the net premium paid out to acquire this position should be equal to the present value of the payoff.
The Standard & Poor's Commodity Index (SPCI) was a commodity price index that measured the price changes in a cross section of agricultural and industrial commodities with actively traded U.S. futures contracts managed by Standard & Poor. The index covered five sectors - Energy, Metals, Grains, Livestock, and Fibers & Softs. Only commodities that are consumed for industrial use were included in the index. Weights in the index was determined by the dollar value of Commercial Open Interest (COI) for each component commodity, and rebalanced annually each February.
The S&P GSCI serves as a benchmark for investment in the commodity markets and as a measure of commodity performance over time. It is a tradable index that is readily available to market participants of the Chicago Mercantile Exchange. The index was originally developed in 1991, by Goldman Sachs. In 2007, ownership transferred to Standard & Poor's, who currently own and publish it. Futures of the S&P GSCI use a multiple of 250. The index contains a much higher exposure to energy than other commodity price indices such as the Bloomberg Commodity Index.
The roll yield is the difference between the profit or loss of a futures contract and the change in the spot price of the underlying asset of that futures contract. Unlike fixed income or dividend yields, a roll yield does not provide a cash payment, and may not be counted as a profit in certain cases if it accounts for the underlying asset's cost-of-carry. Nonetheless, the roll yield is often characterized as a return that a futures investor capture in addition to the price change of the underlying asset of a futures contract.
The Deutsche Bank Liquid Commodity Index (DBLCI) is a commodity price index operated by German based Deutsche Bank. It was launched in February 2003 and tracks the performance of six commodities in the energy, precious metals, industrial metals and grain sectors. The DBLCI has constant weightings for each of the six commodities and the index is rebalanced annually in the first week of November. Consequently, the weights fluctuate during the year according to the price movement of the underlying commodity futures.
Joseph J. "Joe" Cassano is an American insurance executive who was an officer at AIG Financial Products from the division's founding in 1987 until his resignation in February 2008. Cassano is considered a key figure in the financial crisis of 2007–2008.
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.
A commodity index fund is a fund whose assets are invested in financial instruments based on or linked to a commodity price index. In just about every case the index is in fact a commodity futures index.
Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America is a 2010 book by American political journalist Matt Taibbi about the events that led to the financial crisis of 2008.
A managed futures account (MFA) or managed futures fund (MFF) is a type of alternative investment in the US in which trading in the futures markets is managed by another person or entity, rather than the fund's owner. Managed futures accounts include, but are not limited to, commodity pools. These funds are operated by commodity trading advisors (CTAs) or commodity pool operators (CPOs), who are generally regulated in the United States by the Commodity Futures Trading Commission and the National Futures Association. As of June 2016, the assets under management held by managed futures accounts totaled $340 billion.
In finance, a dividend future is an exchange-traded derivative contract that allows investors to take positions on future dividend payments. Dividend futures can be on a single company, a basket of companies, or on an Equity index. They settle on the amount of dividend paid by the company, the basket of companies, or the index during the period of the contract.
Goldman Sachs, an investment bank, has been the subject of controversies. The company has been criticized for lack of ethical standards, working with dictatorial regimes, close relationships with the U.S. federal government via a "revolving door" of former employees, and driving up prices of commodities through futures speculation. It has also been criticized by its employees for 100-hour work weeks, high levels of employee dissatisfaction among first-year analysts, abusive treatment by superiors, a lack of mental health resources, and extremely high levels of stress in the workplace leading to physical discomfort.
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 Zinc stands for a group of spot, forward, and futures contracts traded on the London Metal Exchange (LME), for delivery of special high-grade Zinc with a 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
- ↑ Mou, Yiqun (2011). Limits to Arbitrage and Commodity Index Investment. Columbia University (Thesis). doi:10.7916/D8H41ZDD . Retrieved 31 August 2012.
- ↑ Mukherjee, Andy (9 October 2011). "small change; If you opt for ETFs, take care of the 'roll'". Straits Times .
- ↑ Taibbi, Matt (2010-11-02). Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America . Spiegel & Grau. ISBN 978-0385529952.