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Tuesday, June 8, 2010

Global Futures

Global futures are commodity futures contracts that are tradable in the international marketplace. These financial contracts obligate a buyer to buy or sell the underlying asset, such as commodities, precious metals and currencies, on a predetermined date and at a price agreed upon at the time of purchase. These futures contracts are traded globally in organized futures exchanges, such as London International FinancialFutures Exchange (LIFFE) and International Money Market in Chicago, via an open outcry method. An investor in these futures contracts realizes profits if the market price of the underlying instrument is higher than the settlement price.

Global Futures Trading

Global futures trading occurs against the backdrop of stringent laws and strict surveillance. In the US, the National Futures Association (NFA) and the Commodity Futures Trading Commission (CFTC) regulate the operations of the futures market.

Global futures allow trading in commodities such as oil, gold and forex. Futures contracts in these underlying assets can be traded in the domestic and international markets.

Oil futures: Through this instrument, an investor agrees to buy specific units of oil at a specific price on a specified day. While purchasing the futures contract, the buyer needs to deposit only the margin amount, which ranges between 2% and 10% of the actual purchase price, with the clearing house of the futures exchange. Oil futures are typically traded based on the expectation that oil prices will rise over the coming months. US investors can indulge in oil futures via open outcry trading or electronic trading on the CME Globex trading platform.

Gold futures: These futures contracts offer an alternative means to invest in gold. The pricing of gold futures vary with the global economic and political situation. Gold is a defensive investment and its demand rises during periods of economic and political upheavals. US investors can trade in gold futures through the Chicago Board of Trade (CBT).

Forex futures: These contracts involve foreign currency as the underlying instrument. These futures are used either by firms to offset exchange-rate risk or by speculators aiming at benefiting from exchange ratefluctuations.

Investors enjoy high leverage while trading in futures, but can also suffer huge losses with unfavorable outcomes.

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