TRADING FUTURES WITH 6 UNUSUAL DERIVATIVES
Futures contract are often associated with commodities such as corn, oil, soybeans, and sugar. But do you know you can also speculate on carbon dioxide, economic indicators, freight containers, and weather forecast? Let this article teach you how.
An energy bill kicked around US Congress calling for cap and trade, a regulatory system which aims to reduce certain carbon-based emissions and pollution. The trade part entails giving carbon credits to firms, giving a profit incentive to cut pollution levels faster than its counterparts.
Corporations that emit carbon dioxide for business purposes are given an initial carbon credit allowance. In the event companies have produced more carbon than permitted, they must obtain additional credits to make up the difference.
This system is being implemented in Europe, but the North America has begun to test out certain pilot programs, including the Regional Greenhouse Gas Initiative (RGGI). The Chicago Mercantile Exchange (CME) is setting itself up to trade RGGI futures.
In the future, several factors will affect the value of these credits, including environmental legislation, geopolitical matters, and fossil fuel prices like crude oil and natural gas.
The Baltic Exchange in London offers swap trading for certain trading routes, including Forward Freight Agreements (FFAs), exchange-traded funds, and swaps futures. One party makes a speculation as to whether the rate to transport an item will increase or decline in the future. Naturally, the other party takes the opposite side. When the future date arrives, the swap is settled in cash. Derivatives refer to assets obtaining their value from another. For example, in FFAs, the contract’s value is taken from the actual spot shipping rates seen in the Baltic Exchange.
Many corporations trade in this derivative to hedge against geopolitical risks and escalating oil prices, among others. Shipping rates are notoriously volatile; therefore, it is not usual for rates to swing at least 100% in the coming months.
Traders can speculate on the number of hurricanes that will reach the shores in the following year. Offered on the CME, contracts will be based on the number of hurricanes that will affect certain geographic regions of the nation.
Aside from an atrocious bettor, contracts are also helpful to insurance firms and oil producers. These entities can sustain hefty losses in case many huge hurricanes cause damage or halt operations during this natural occurrence.
You can bet on a specific movie if you think that film will become a blockbuster of the year. Investors, through the Hollywood Stock Exchange, can purchase and sell virtual shares of celebrities and movies using the currency, Hollywood Dollar.
Founded in 1996, the entertainment market’s Virtual Specialist allows clients to trade thousands of virtual entertainment securities in a fair and disciplined manner, and supply-and-demand based market. Located in Los Angeles, California, HSX is a subsidiary of Cantor Fitzgerald, L.P.
Believe it or not, people can speculate on jobs, one of the most sensitive parts of an economy. Nonfarm payrolls trail changes in jobs every month, and are one of the highly monitored economic indicators. One of the most significant data on Wall Street, the figures are released by the Bureau of Labor Statistics every 1st week of each month.
Derivatives anchored on this indicator notice their value increase by $25 for every 1,000 new jobs over the previous month. CME enables a trader to hedge or wager on movements on the data.
Trading on weather is almost gambling since you are betting on something beyond your control. However, weather hugely influences a business, specifically the industries of agriculture, energy, insurance, and travel.
This is not as simple as purchasing rain tomorrow and selling a chilly day. But that is not the case. Temperatures are averaged over a given time period (e.g. three months of summer and winter). Then, temperatures are divided and packed into ranges for trade. CME offers various weather derivatives available for trade, encompassing several continents and more than 40 global cities. It entails temperature ranges, frost, and snowfall amounts, among other factors.