Considerations and Regulations For Commodity Investments
Regulations
When it comes to regulating the commodities markets, there are some issues that have been raised. Across the world, different governments have decided to provide insurance or regulating standards as well as backing insurers or releasing the liability before they allow trading to begin in a commodities market. The Commodity Futures Trading Commission is the principle regulatory agency in the United States for trading futures and commodities. This agency is responsible for detecting and preventing distortions in commodity prices as well as commodity traders. They are responsible for detecting and preventing distortions in commodity prices as well as commodity traders.
They are responsible for licensing all exchanges in future contracts. If these contracts are not licensed, they cannot legally be traded on these exchanges. One of the jobs of this commission is to regulate speculation. For example, as of July of 2009, the Commission discussed the advantages of restraining the speculation of the energy markets. Since the energy markets affect all Americans, the dangers of speculating on energy prices can lead to the retardation of economic growth and can also lead to mass inflation.
Along with the Commodity Futures Trading Commission, the National Futures Association out of Chicago works to self-regulate the industry. This association works to enforce the many regulations and rules that govern floor brokers, floor traders, and member firms. Everyone that wants to buy or sell future options with customer funds must first register with the association. Individuals also need to register with the National Futures Association if they want to enter the business of offering training advice when it comes to futures. The association also governs its members with extensive rules that include introducing brokers, commodity pool operators, and commodity trading advisers and their associates.
Why Invest in Commodities?
1. Commodities are a completely transparent investment. The large-scale participation allows for fair price discovery. This wide scale participation will allow investors to see the expectations and view of a wide range of individuals that are concerned with a commodity.
2. Commodities investors prefer this platform because it allows sellers to hedge their positions.
3. The potential for insider trading does not exist.
4. The level simplicity when it comes to selling and buying commodities. It is a simple matter of supply vs. demand.
5. Commodity future traders only need to deposit 10 percent of the contracts total value. This can be beneficial because it is much lower than other classes of assets, and the low margin makes acquiring larger positions with less capital one of the many benefits.
6. Commodities have seasonal patterns that make trading easier for all investors.
7. Commodities markets use clearing houses and because of this, there is no counter-party risk. This also guarantees that all contracts terms will be met.
8. The popularity of online trading has allowed the commodity market to grow, as well as bringing the market closer to investors.
9. Involved pricing has benefited the commodities markets. As the number of individual participating increases, it shrinks the risk of cartelization, and as a result prices stabilize.
Author: Bret Dashel
Article Source: EzineArticles.com
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