commodity futures online trading
The first organized commodity exchange in the United States was the Chicago Board of Trade founded in Chicago in 1848. The Chicago Board of Trade was originally intended as a central market for the conduct of cash grain business, and it was not until 1865 that the first futures transaction was performed there. Financial futures were not introduced until the 1970s. In 1976, the International Monetary Market, a subsidiary of the Chicago Mercantile Exchange which is the largest futures exchange in the U.S., began the 90-day Treasury bill futures contract. The following year, the Chicago Board of Trade initiated the Treasury bond futures contract. In 1981, the International Monetary Market created the Eurodollar futures contract. Later there were many financial futures contract which provided for cash delivery rather than delivery of securities.
Trading in futures is regulated by the Commodity Futures Trading Commission, an independent federal agency consisting of five commissioners appointed by the President. The Commodity Futures Trading Commission serves as an overseer by determining that self-regulation is continuous and effective.
II. EXCHANGE REGULATION :
Exchange rules and regulations cover many aspects of futures trading, from contract specifications to trading practices to arbitration procedures. Following are some of the more important rules, which should serve as a useful guide to exchange self-regulation.
III. OPEN MARKETS :
All trades must be made in the open market. This means that all bids and offers must occur in an exchange-approved trading arena, either in the trading pit by open outcry or on an electronic trading system and be made available to all members present. Exchange for physicals, transactions used by hedgers who want to exchange futures for cash positions, are an exception, permitted according to Commodity Futures Trading Commission and specific exchange rules.
IV. COLLECTING TRADE DATA :
Trading information is transmitted to an exchange's clearinghouse either by clearing firms or exchange staff. This information is usually sent via computer from a firm's back office system or via direct input form a trade-entry system within an hour after a trade occurs. Some exchanges are working together to standardize the method used to relay this trading data. The Chicago Board of Trade and the Chicago Mercantile Exchange, in particular, have formed a strategic task force to work together. The new Order Routing System now in use at the Chicago Board of Trade and elsewhere, which to some extent automatically transmits trade information to firms back offices and the appropriate clearinghouse, represents the first step in that effort.
V. TRADE MATCHING AND REGISTRATION :
Once the clearinghouse receives completed trade data, computer systems at the clearinghouses compare both sides of a trade, making sure that the price, contracts, and other important trade data match. Unmatched trades are displayed online throughout the trading day so that clearing firms can make corrections.
Trades that remain unmatched after the close of the trading day are reconciled at a trade-check session. This trade checking usually takes place on the trading floor the next day before the markets open.
Clearinghouse computer systems provide all clearing firms with online and printed verification of all reconciled trades. Clearinghouses then calculate original margin requirements for each clearing firm?s open positions. This registration process is crucial to clearing firms, as it is the official record of a day's trading activity.
VI. FUTURES ONliNE :
The exchanges are the greatest single source of information about the futures contracts they trade and futures activity in the marketplace. Some of the features offered on the Web sites include price quotes, market commentary, volume and open interest, technical analysis, current cash prices for each commodity and index, background information on each futures market, contract specifications, crop reports, education, and news. Stated simply, the exchanges are an important and invaluable source of information, much of which is free of charge.
TFC Commodity Futures and Financial Market Charts is probably the best free chart service available on the Internet. It tracks many commodities and financial indicators, making the information available in the form of daily, weekly, land monthly charts. With the charts is included an analysis of certain key indicators, such as open interest, relative strength index, and short-, medium- and long-term moving averages. A personalized charts menu can be created to gain quick access to the charts of greatest interest to a trader.
VII. FUNDAMENTAL ANALYSIS:
No magic formula exists when it comes to analyzing the market. Fundamental analysis is one way to evaluate whether a market is likely to go higher or lower. Fundamental analysis refers to those elements that affect the physical supply and demand. Trades are placed in the futures markets based on the flow of supply and demand in the cash markets.
VIII. SUPPLY :
The supply of commodity items is made of (1) the current year's production, (2) carryover from the previous year's production, and (3) imports. For example, a commodity such as gold is mined in the United States throughout the year, stored in vaults for future use, and imported to other countries in order to meet domestic demand. Some commodities are perishable and cannot be stores year after year, but in general, carryover inventory is an important part of supply.
IX. SIGNIFICANCE OF DAILY PRICE liMITS FOR FUTURES :
Each exchange sets limits within which a future's price can fluctuate during a single trading session. This restriction serves to limit the exposure of traders on any single trading day. The exchange determines the price ranges based upon variations occurring in the underlying cash markets. These ranges can be adjusted periodically as price volatility increases or decreases. In some contracts, daily price limits are eliminated during the month in which the contract expires. Prices are particularly volatile during the expiration month. As a result, inexperienced traders may wish to liquidate prior to that time.
The limits are expressed in terms of the previous day's closing price plus or minus an amount per trading unit. When a futures price has risen by its daily limit, there can be no trading at any higher price until the next day of trading. Alternatively, when a futures price has declined by its daily limit, there can be no trading at any lower price until the next day of trading.
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