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How are commodity futures contracts listed? Many of the grain companies and trading houses including the bulk of the line companies are privately owned… trading on a spot basis
The long and short positions of the physicals are not revealed, so the exchanges only list and offer what is bought and sold from public companies?
Sorry if this is a really basic or silly question, I don’t have any experience trading futures
they're listing the contracts bought and sold on the exchange.
you have to remember, futures are used mainly for hedging.
so... lets just use silver for example.
you're a silver mining company. you estimate youre gonna mine 10000oz (for simplicity sake), over the next month. silver is at 30 bux now. but your analysts say silver may drop over the next month before you can mine it, refine it and sell it off to a major jewellery retailer.
what you would do is you would short the equivalent of 10000oz of silver contracts at 30 bux. therefore locking in your profit at 30 bux.
if silver drops to 20 bux, it's okay cuz you've made that 10 dollar difference on your silver future contracts.
if silver goes up to 40 bux, you lose that 10 dollars on the futures, but your actual physical silver asset goes up 10 bux, so no matter what you make 30 bux. it's locked in at that price.
private sales between companies are not listed and do not affect the exchange.
like say you (chronic) wants to make a deal with me (ulic) and we're both involved in the silver industry... but we don't like the prices (or the specifications in the contracts) or whatever... and we wanna do a custom deal...customized to suit our businesses... we can just buy and sell from each other at whatever we agree on. and it will never be listed or known. it's completely not related to the futures market.
you gotta remember, most futures are used for hedging cuz the companies that hedge are not in the business of speculation. they're just in the business of ... whatever commodity it is. silver, grains whatever. they wanna lock in a sure price. they want assurance, not risk. so they reduce their risk by a lot by hedging. makes sense?
not sure if that answers your question. but it should give you some insight to how futures works.
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Quote:
Originally Posted by 6chr0nic4
How are commodity futures contracts listed?
How are they listed? you mean by months? Like Corn is March (H), May (K), July (N), September (U) & December (Z)
Quote:
Originally Posted by 6chr0nic4
Many of the grain companies and trading houses including the bulk of the line companies are privately owned… trading on a spot basis
Lots of public grain companies ADM, MGPI, BG, CHSCP, INGR.....
Quote:
Originally Posted by 6chr0nic4
The long and short positions of the physicals are not revealed, so the exchanges only list and offer what is bought and sold from public companies?
Sorry if this is a really basic or silly question, I don’t have any experience trading futures
Not sure what you mean by this, but there is the Commitment of Traders that comes out every Friday tells you the longs and shorts of funds vs grain companies vs the public
lol, i don't know the precise answer for that. But I am assuming most contracts are fabricated out of nothing.
im pretty sure if everyone that bought wanted to take delivery, it would become a major issue.
the thing is. to be able to let it expire, your broker and the exchange would make sure you actually have enough money to take delivery, before it expires.
and also, if you take delivery, you're probably a hedger... and you would be listed as such in your account. i'm sure they've got their think tanks to math out the number of actual hedgers on the market vs actual physical shit to deliver.
other than that... yeah, like almost all the contracts are just ... little simulated tickets that say "i have the right to buy or sell commodity X at this price at this date" and you're just trading those little tickets around with other people. and dumping them before they expire lol.
i think this is why some people are against people trading futures... they push the price of commodities up and down a lot more than if only hedgers traded it... or so they say. lol. artificial volatility.
where are the contracts derived from? if your position expires you're suppose to in theory take physical delivery of the commodity (although rare)
Futures contracts trade on designated futures exchange such as Chicago Board of Trade (CBOT). The exchange specifies all of the contract terms except the price which is determined through the trading process.
Affiliated with the futures exchange is a clearinghouse. The clearinghouse acts as the counterparty to the customer on every trade he does. The clearinghouse is (or tries its best to be) protected from the market risk because it is always long and short the same number of each contract. The vast majority of futures contract do not lead to delivery; most traders close out their position prior to the delivery date. The exchange specifies the last day which trading can take place for a given contract and trading usually ceases a few days before the last day.
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Quote:
Originally Posted by 6chr0nic4
where are the contracts derived from? if your position expires you're suppose to in theory take physical delivery of the commodity (although rare)
It's not in theory though, you are committed. If you are short, you deliver 5000 bushels. If you are long you have to accept 5000 bushels.
How are the contracts derived?
Now regularly if you were say a corn farmer and your 5000 bushels won't be ready until september and you like the price right now, say $6. It works out for you considering your costs etc. So now you look at corn futures for september and see that you can see that that contract is trading @ $6.25. (Just like the stock mkt, it's an auction mkt.) So you go into the mkt and sell 1 september corn futures = 5000 bushels, making you short. You've sold your crop now for sept @ $6.25 a bushel and you don't have to worry about corn prices dropping.
As Gnome mentions at the end of each day the clearing house takes the end of day price for september corn and then withdraws or deposits into each account accordingly.
When sept comes around, as a farmer in the business, of course you have your regular/local business contacts that you would send your corn to. You don't want to send your corn to the clearing house's warehouse so you go back to the CME and buy a september corn contract. If corn prices are now $6 / bushel you buy one and that cancels out your short position ie your commitment to deliver.
So with that price, your account has credit of $1250. 25 cents X 5000
You sell your corn to your regular guy at the current price $6 and don't miss out on the $6.25 price
Quote:
Originally Posted by 6chr0nic4
@minoru
The CFTC doesn't list physical commodity trades made by private grain companies (which in Canada hold considerable market share)
Correct, the CFTC would not list physical commodity trades. CFTC stands for Commodity Futures Trading Commission and physical trades are not futures.
Did I answer your question? If not please reword it
I laughed my ass off at this video BEFORE I traded trading futures myself...and pretty much the same thing happened to me except that I was trapped short rather than long...and I WISH it was only a measly 30K that I lost!
Thanks ! These guys seems like a small firm ! Why you choose them over other bigger ones or banks?
Well I trade the e-mini index futures and the platform I use is not offered on any of the big banks (I'm not even sure if you can trade emini futures on something like scotia trade since your leverage is so insane).
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