What is a "financial future"?

A financial future may not be a classically defined commodity, such as beans or petroleum, but may be derived from a financial vehicle, such as a stock market index, interest rates, currency basket, etc.

What is a "margin"?

An exchange obligates sellers and buyers to deposit cash in the form of a margin, and to clear differences in price between the future price of the contract and the current or daily price, as it changes, until the future contract is settled. This cash is then deposited into either the buyer's or seller's account, depending on the direction of the price movement. This margin may be between 5-15% of the contract's value, and is sometimes referred to as a "performance bond".

What is "marking to market"?

Marking to market is when either the buyer's or seller's account must have additional cash deposited to cover the price difference between today's price and the future price agreed upon in the contract. On the delivery date, when the futures contract is settled, the spot value or spot price is paid.

What is the "spot value"?

On the delivery date of the contract, the amount of money that changes hands is not the specific price of the contract, but the original value agreed upon, since all gains or losses have been previously settled by marking to market.

What are some fraudulent websites that purport to trade in futures and options?

The SEC, through its Commodity Futures Trading Commission (CFTC), regularly monitors and investigates fraudulent companies that attempt to steal money from unsuspecting investors. Some of these sites include Global Financial Private Capital, Colfax Trading International, Forex4You, White, Truman and Fischer, Excaliber Precious Metals, and CommodityProfits.com. For more information, you may visit the Commodity Futures Trading Commission's website.

When did futures contracts first emerge?

As early as the eighteenth century, Japanese rice farmers needed a way to collect money in expectation of future harvests. In the United States, the Chicago Board of Trade emerged in 1848 as an exchange to bring buyers and sellers to a marketplace to trade grains.

If I am dealing with a well-respected, global firm, am I immune to fraud in futures or commodity trading?

No. In a period of 18 months, the CFTC imposed $1,765 billion in penalties involving manipulation of interest rates on such globally recognizable firms as Royal Bank of Scotland, UBS, Rabobank, and Barclays. Large-branded financial companies may still have employees who engage in fraud or abuse.

 
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