On their website, the NFA states they "strive every day to develop rules, programs and services that safeguard market integrity, protect investors and help our Members meet their regulatory responsibilities." The details of hedging can be somewhat complex but the principle is simple. <>/XObject<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/Annots[ 10 0 R] /MediaBox[ 0 0 540 780] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Before anything else, make sure you understand the inherent risks in futures trading. endstream endobj 63 0 obj <>>> endobj 64 0 obj <> endobj 65 0 obj <.

2. Amount of units of underlying asset per contract.

5 0 obj Past performances are not necessarily indicative of future results. A futures contract in finance is a security (derivative contract) between two parties who agree to buy or sell a specific asset (gold, oil, wheat etc.) 5.) Past results are not necessarily indicative of future results. endstream endobj startxref ꪠ5ee5;g2��Ⓟ���ö�`��0�J�˄{tq��1)đ����In�2ϱ�i���u Ԓ۟�봸�Α`M���?^�u'�`��ΛAb�ϔG��� A�q��s���D�����8ؽQ�_%8mc#i�NC��7ܺV�{� �|ȷ�O$�a <> Thus, in an option on a futures contract the buyer or seller would only exercise their option if it were financially beneficial to them. The underlying asset or instrument, from a barrel of crude oil to a troy ounce of gold. The answer is supply and demand. This is not a solicitation of any order to buy or sell, but a current futures market view. More information is available at their website: www.nfa.futures.org. If the margin call is not paid on the same day the broker has the right to close the position to meet the amount called, in which case the client is liable for any resulting deficient in their account. ��7�6�k�=������m4D�YHA๋��2$����?B� ����4� �KWwQ&��eMx�j�:¢��K��կZ=���P}��R�%X�9�}�v���M5�r�����][x����l����X�'�b�$}�H���W�>2V� ����.

3s�a_DPDQąE���{� �R��>������~�@�3����~�@t��"L0#�$���>/�@�Jǫc�Y��0��ҭV�=��M6j���'2���� � � � �o"5a՝�Qo*5�����T֐��j}k���4��Z�� The types of assets that underlay futures contracts range from physical commodities like oil, gold or wheat to financial futures like currencies, securities or financial instruments (U.S. Treasure Bills), or intangible assets like a stock index and interest rates. Tel: (603) 2172 3860 Fax: (603) 2172 2729 Email: futures@kenanga.com.my A central marketplace that brings together buyers and sellers to …

@��� &�;ρ���8 ��o �(r 0 You should be careful of any advertising or other claims of potential for sizable profits in day trading. We suggest you review the risk page of our website. �x���x��xDfWg��4ɚ��S!��ۀ�Rw�4���帗$.��kc��⺼�WKK���K-���7+B?-�錵1h�p�����>��s�/� f��V\{" ��r�(����;���_��5a Hj�o${;Ͳnr��l�u�w,1��ˏ,)!np��}U=�:����T�Җ�ݷ߶@`�R�k�6�$��@��k

While actual physical delivery of the underlying commodity seldom takes place, futures contracts are nonetheless Futures contracts are often traded on margin, or in other words only a small percentage of the total cost is actually put forth initially by the trader. Both the Commodity Futures Trading Comission and the NFA host a variety of excellent commodities trading educational materials on their websites, some of which we have included in our own futures trading educational section for your convenience.

6 0 obj endobj This method is often used when physical delivery of the asset is not possible, like with an index or interest rates.

This is a rather lengthy introduction to futures trading. Customer Margin: Set by FCM and IB, determined by market risk and the value of the contract. Futures 101 - Understanding the Futures Markets.

In commodities trading A contract will specify: In a futures contract the buyer or seller has an obligation to deliver or take the commodity according to the terms of the contract. endobj

111 0 obj <>stream We strongly encourage you to seek out further information about commodities trading from your broker or advisor, the U.S. Commodity Futures Trading Commission (CFTC), and the National Futures Association (NFA). The collateral is deposited into a margin account.

The first thing any investor should know about the futures trading market is that it is risky, and only risk capital should be used to invest in it. The material contained on this page is intended solely to help give an introduction to futures trading, and in no way should be taken as futures trading advice or recommendations. Futures 101 Most often, though, futures traders are focused on price prospects over the next few months. endobj We encourage you to read the materials we have on our website, as well as the CFTC's and NFA's commodities trading educational materials. �ӕ%���)V@��V���p��� Each futures contract consists of the type of commodity or asset being traded, the month the contract is for,

If there is a large supply, and/or a lack of demand, the price of a commodity is inevitably pushed down. Futures contracts are financial instruments focused on discovering the price of a specific commodity or asset at a specific time in the future—anywhere from tomorrow to years from now. Furthermore, day trading on margin can lead to losses above your initial investment. endobj 4.) May also be called "variation margin". Readers are urged to exercise their own judgment in trading! If you have any questions after reading this commodities trading educational material, or about anything included in here, don't hesitate to call us at (800) 454-9572 U.S. or (310) 859-9572 International.

Intermediaries are generally required to register with the CFTC and, depending on their activities, are subject to many financial, disclosure, reporting, and record-keeping requirements. endstream Each asset will have its own measures of quality. endobj The material contained on this page is intended solely to help give an introduction to futures trading, and in no way should be taken as futures trading advice or recommendations. You can use the navigation at the top of the article to jump to a specific point within the article. Prices for futures contracts fluctuate throughout day as demand interacts with supply, and the official final price at the end of the trading session on the exchange is called the settlement price for that day of commodities trading. and the year in which the contract is for.

Make sure you are fully informed about the process of futures trading. As a counter-party on all contracts, the exchange acts as the buyer to every seller and the seller to every buyer, which minimizes the counter-party risk to traders. Futures 101 Introduction What determines the price of a commodity? Futures contracts are standardized, which is what allows them to keep their liquidity. National Futures Association (NFA): The National Futures Association is the independent, self-regulatory organization for the U.S. futures trading industry. The party buying the asset in the futures contract takes on a long position, while the party selling the asset in the futures contract takes on a short position. x�� XT����3�����/̢-Z.�k��M۵�V+˺f��e��ڽ�YY�߲���� Since you can trade futures across six different asset classes, diversity is a key reason why many traders turn to them.

62 0 obj <> endobj (��0�Ea+�|���mDŐ��������N��B�(`��$�Y��!����m�^�Pȓ��Z�xAX8Zq�ط�N�0�6� ��u��@�|���q����on���ZR��ǧ> �� �P*�4`�0\���8A��(�8뺔��aE��8�1�S �`��^��t'�����l۪*.7ɇk :��������9�b�8�ṯ��x�����X*�T�R��U��j�j���ns����D�G*V��K�x�\q[��G���� ���X��%d��g����LcB��VU5 �;a options on futures con-tractsin1982. The CFTC's regulations can be found at Title 17 Chapter I of the Code of Federal Regulations (CFR), and much more information is available at their website: www.cftc.gov. Combine that with virtually around-the-clock trading hours (so you can respond to market conditions and economic events as … Futures 101 Get a handle on the basics Why consider futures? ", As the CFTC website states, [in commodities trading] FCMs "Solicit or accept orders for futures or options contracts traded on or subject to the rules of an exchange" and In abstract financial instrument futures this refers to which bonds can be delivered. ���A� �, In an option on a futures contract the buyer or seller has the option to deliver or take the commodity according to the terms of the contract. While these types of calls are usually made on a daily basis, period of high volatility may require intraday margin calls. h�b```e``�$ٷ22 � P���c�C�ܓ ����[���o``��h`���`� �U@���i)��>�%�wr�h�;(ʙ�i0�I��f��E�,wK�t������e��#�X/�� �N �Ȁ �2��b=,U�� Futures contracts are exchange-traded derivatives, so each exchange has a clearing house that acts as a counter-party on all contracts, sets margin requirements, and provides a mechanism for settlement. Type of settlement – Cash or Physical. <> Maintenance Margin: defines how much the value of the initial margin can reduce before a margin call is made. Trading commodity futures and options involves substantial risk of loss.

k�1?�t�Q��"�e�r86AAAA'+)a�J���UGeq&J2kHd��"�#�\`g�)���*�5����'�a�0k � � � �NTF��"`�::�3�rƣ;3G'�էsƍ���Ժ�r?"�� � � � ��2:O�~� "in or in connection with such solicitation or acceptance of orders, accepts money, securities, or property (or extends credit in lieu thereof) to margin, guarantee, or secure any trades or contracts that result or may result.". %PDF-1.7 %����

Initial Margin: Set by the exchange, and is the initial equity required to enter into a futures contract. Margin Calls: Margin calls occur when the value of the original margin is eroded, and the broker requests additional capital to restore the amount of the initial margin.

Thus, the clearing house assumes the default risk.

%PDF-1.5 2.) 8.) The risk of loss in futures trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition. h�bbd```b``�����d �lA$S.�T�ۃճ�E^��f�� 0��f7��gA$W$�d���`���Hy�6�q+X�����*! 3 0 obj

The price of the asset is set by the market forces of equilibrium between the supply and demand of the underlying asset as well as between competing buy and sell orders for that type of contract on the futures exchange.

1 0 obj A futures contract is a legally binding agreement to buy or sell a commodity or financial instrument sometime in the future at a price agreed upon at the time of the trade. Physical delivery: the amount of the underlying asset specified in the contract at the quality specified is delivered by means specified in the contract by from the seller to the exchange, and is then delivered by the exchange to the buyer.

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