Futures and Commodities

What is a Future? What is a Commodity

Futures and commodities are traded on a futures exchange, most commonly at the Chicago Mercantile Exchange (CME) or at the New York Mercantile Exchange (NYMEX). The futures markets cover financial products such as currencies, stock and bond indexes, and others. The commodities markets cover energy products such as oil, natural gas, and heating oil, as well as the metals markets, primarily gold, silver, and copper. The commodities markets also feature well-known everyday products such as coffee, sugar, cocoa, wheat, cattle, orange juice, and corn to name a few.  The futures and commodities markets are traded by many market players such as hedge fund managers, day traders, producers of the products being traded, and future purchasers of the underlying commodities to name a few. Investors in futures and commodities are required to post margin, which is typically 5 to 15% of the underlying contracts value. The margin rates are set by the exchange where futures or commodities are traded. The futures markets and commodities markets provide a necessary avenue for commodity producers, or purchasers to hedge future price changes in the underlying commodity, or for investors to account for future changes in interest rates or currency exchange rates. There are also many market players that trade the futures and commodities markets to profit from price changes in either direction.


Commodities Investments and Futures Investments

Commodities Investments and Futures Investments

Risks in the Futures Markets and Commodities Markets

The risk of investing in futures or commodities for the average retail investor is significant. Futures and commodities are subject to wide price fluctuations due to various market factors. Due to the fact that only a fraction of the underlying value of the contract is posted using margin, investors can lose substantially more than their initial margin deposit. The risk of investing in futures or commodities is unlimited. Due to stock market uncertainty over the last decade, more and more financial advisors are encouraging retail investors to allocate a portion of their savings to futures or commodities. The most common recommendation is to invest in oil or gold. Regardless of the representations that are made regarding the price increases in these markets, investors should only invest money in these markets that it can afford to lose, otherwise known as risk capital. Accordingly, any investment recommendation greater than 5% of an investor’s liquid net worth may be an unsuitable recommendation.

Futures Investors and Commodities Investors

Investors should also be aware of the growing popularity of companies recommending investments in gold and silver bullion. These companies often charge significant fees and commissions for their services. These companies are the subject of widespread litigation in South Florida. Investors should be wary of high pressure sales tactics or any guarantees being made by a financial advisor recommending such investments. Despite the recent rise in futures and commodities prices, investors should be aware of the significant risks of investing in these markets.

Legal Help for Victims of Commodities Fraud

The Investment Fraud and Financial Fraud Attorneys at Gilman Law LLP, a leading securities fraud law firm, are here to help you recover damages on your commodities investments or futures investments. For a FREE consultation and evaluation of your case, please complete our Free Consultation Form Online, or if you need to speak to a securities fraud attorney right away CALL TOLL FREE (888) 252-0048 today.