Concepts
26 topics
Futures Contracts
Each contract fixes quantity, quality, delivery point, and months, 1,000 barrels at Cushing, 5,000 bushels in store, so only price...
Spot and Forward Markets
Spot is now: wet barrels, cash grain at the elevator, metal in the warehouse, priced at a location with a differential to the benc...
Contango
The term, an old piece of London exchange slang, describes an upward sloping forward curve where nearby months are cheaper than de...
Backwardation
In backwardation the front month costs more than deferred months: users bid up barrels available now, paying a premium for immedia...
Hedging
A refiner buying crude futures locks a refining margin, a farmer sells corn futures against unharvested bushels, an airline buys c...
Speculation
Speculators run from trend following funds to oil majors proprietary desks, index money, and retail option crowds, and they hold t...
Options on Futures
Exchange traded options on CME and ICE contracts grant the right, exercisable any time, to enter futures at a strike, with premium...
Margin and Leverage
Initial margin, a few percent of contract notional, is set by clearinghouses on volatility, and maintenance levels trigger top ups...
Commodity Exchanges
CME Group runs grains, energy, metals, and livestock from Chicago and New York. ICE owns European energy and the New York softs, s...
Commodity Indices
The S&P GSCI, the old Goldman index, is energy heavy, the Bloomberg Commodity Index is balanced, and the old Reuters CRB was the p...
Cost of Carry
Carry explains curve shapes: the fair forward price equals spot plus warehousing, interest, and insurance, minus the convenience y...
Commodity Supercycles
Analysts identify supercycles back to the 1890s US industrialization, postwar reconstruction, and the 2000s China surge, each pair...
Seasonality
Natural gas peaks in winter heating with a summer injection season, gasoline peaks in summer driving, grains bottom under harvest ...
Basis Risk
Basis equals cash minus futures, set by freight, quality differentials, local supply and demand, and delivery mechanics. A country...
Crack Spread
A barrel cracks into products, roughly half gasoline and a third distillate, and the 3 2 1 crack sells three crude against two gas...
Roll Yield
Index funds cannot take delivery of cattle and crude, so they sell the expiring contract and buy the next month, and the price dif...
Commodity ETFs and ETCs
Futures ETFs hold front month or optimized rolls, embedding roll cost with no oil in a tank, while physically backed ETCs hold met...
Physical Delivery vs Cash Settlement
Physical delivery, the old standard, anchors futures to reality: whoever holds the contract at expiry can take the goods at the de...
Warehousing and Storage
Storage arbitrages time: buy now, store, sell later when the spread pays the cost. Cushing tanks define the WTI contract, and week...
Water Rights
In the western US, prior appropriation ties rights to seniority, first in time first in right, and rights can trade separately fro...
Carbon Credits
Compliance markets cap and trade: the EU system, the largest, forces power, industry, and aviation to surrender allowances whose p...
Open Interest
Open interest counts outstanding contracts that have not been closed by offset, delivery or exercise. Each contract has one long a...
Commitments of Traders Report
The Commodity Futures Trading Commission publishes the Commitments of Traders report each Friday afternoon, with positions as of t...
Convenience Yield
Convenience yield is the return that owners of physical inventory earn by having material on hand, avoiding production stoppages a...
Price Limits
Many futures contracts carry daily price limits, the maximum move up or down from the prior settlement, after which trading halts ...
Commodity Trading Houses
Trading houses such as Vitol, Trafigura, Glencore, Gunvor and Mercuria in energy and metals, and the grain merchants Archer Daniel...