FUTURES

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FUTURES

• NICK PIANTEK

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WHAT ARE FUTURES??

• Futures are contracts to buy or sell a specific
  commodity on a specific day for a present price.

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WHY WERE THEY CREATED?

• Futures provide producers, farmers, and end users
  with the opportunity to hedge their position
  against large price swings and potentially large
  losses.

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WHO TRADES FUTURES?

• Hedgers (Farmers and Commercials) trade futures
  to reduce risk.
• Example Farmers who commit themselves to sell
  grain at a good price are protected if prices
  drop.
• Large Speculators (brokerage houses) trade both
  their own accounts and their clients accounts to
  capitalize on price swings.
• Small Speculators (investors) trade futures to
  capitalize on large moves in the direction of
  their position.

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TRADING FUTURES

• When you buy a futures contract, you pay an
  initial margin (usually between 2 and 10
  depending on the client)
• This installment must remain 100 intact day to
  day. It can grow, but cannot drop.
• When you leave the market (i.e. sell it back) it
  cancels your obligation to buy the commodity on
  the contract expiration date.

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MARKED TO MARKET

• Marked to Market means that at the end of the
  day, the house settles all accounts.
• If your contract profited on the day, the money
  is credited to your account when the market
  closes for the day. If the position went against
  you, the account is debited that amount.

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TYPES OF COMMODITIES
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SUBGROUPS

• Softs (Food and Fiber)
• Grains and Oilseeds
• Livestock
• Metals

• Petroleum
• Currencies
• Index
• Interest Rate

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SOFTS

• Orange Juice
• Cocoa
• Coffee
• Sugar
• Cotton (fiber)

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GRAINS and OILSEEDS

• Corn
• Oats
• Wheat

• Soybeans
• Soybean Oil
• Soybean Meal

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LIVESTOCK

• Live Cattle
• Feeder Cattle
• Live Hogs
• Pork Bellies

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METALS

• Copper
• Gold
• Silver
• Platinum

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PETROLEUM

• Crude Oil
• Heating Oil
• Unleaded Gas
• Natural Gas

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CURRENCIES

• British Pound
• Japanese Yen
• Swiss Franc
• Canadian Dollar
• Deutsche Mark

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INDEX

• Dow Jones Industrial
• SP 500
• Nasdaq 100
• US Dollar
• NYSE Composite
• Others

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INTEREST RATE

• Treasury Bonds
• Treasury Notes
• 2 yr. Notes
• 5 yr. Notes
• Treasury Bills
• Municipal Bonds
• Eurodollar

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OTHER COMMODITIES

• Lumber
• Palladium
• Milk
• Propane
• Butter
• Eggs

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WHERE ARE FUTURES TRADED?
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MAIN CITIES WITH EXCHANGES

• Chicago
• New York City
• Kansas City
• Minneapolis

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CHICAGO EXCHANGES

• Chicago Board of Trade
• Traded grains, T-bonds and notes, metals,
  indexes
• Chicago Mercantile Exchange
• Traded livestock, currency, indexes
• MidAmerica Commodity Exchange (MidAm) deals in
  half contracts.
• financial futures, currency, livestock, grain,
  metals

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NEY YORK EXCHANGES

• CTN, NYFE, FINEX
• New York Cotton exchange and its divisions New
  York Futures exchange and Financial Instrument
  Exchange
• Traded cotton, orange juice, currency,
  Treasuries, indexes
• CSCE
• Coffee, Sugar, and Cocoa exchange

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NY EXCHANGES (cont.)

• NYM, CMX-COMEX
• New York Mercantile exchange and its division
  Commodity exchange
• Traded Financial futures, metals

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KANSAS CITY and MINNEAPOLIS EXCHANGES

• Kansas City Board of Trade
• Traded grains, livestock, softs
• MPLS
• Minneapolis Grain Exchange
• These exchanges are mainly agricultural exchanges

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CONTRACT SPECIFICATIONS

• These are the sizes of the contracts.
• Some examples
• 1 Wheat contract 5,000 bushels of Wheat
• 1 Gasoline contract 42,000 gallons of Gas
• 1 Sugar contract 112,000 lbs. Of Sugar
• Therefore, if wheat is being traded at 3.20 a
  bushel, 1 contract 16,000. A one cent move is
  equal to 50

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SEAT PRICES

• A seat on the Chicago Mercantile Exchange today
  is worth between 385,000 and 400,000.
• A seat on the New York Mercantile Exchange is
  currently being offered by the exchange for
  700,000.

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JUST A NOTE

• Futures vs. Options
• similarities
• Both Derivative investments (once or twice
  removed from an underlying product)
• Both were created to reduce risk
• difference
• futures-obligation to buy/sell at a present price
• option-right to buy/sell at a preset price

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IN CASE YOURE INTERESTED

• Heres some web sites you can look at if youre
  interested in learning more
• http//www.cbot.com
• http//www.cme.com
• http//www.nybot.com
• http//www.nymex.com
• http//www.kcbt.com
• http//www.midam.com
• http//www.cboe.com

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QUESTIONS