Controlled commodities: Difference between revisions
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'''Controlled commodities''' are commodity [[futures]] that have to follow rules of the Commodities Exchange Act. The act established in 1936 rules that prevent fraud in the [[market]] of controlled commodities. Nowadays all major exchanges require using rules of Commodities Exchange Act, therefore almost all commodity futures are related to controlled commodities. The bodies that are responsible for monitoring controlled commodities market are Commodity Futures Trading Commission and National Futures Association (in the US). | '''Controlled commodities''' are commodity [[futures]] that have to follow rules of the Commodities Exchange Act. The act established in 1936 rules that prevent fraud in the [[market]] of controlled commodities. Nowadays all major exchanges require using rules of Commodities Exchange Act, therefore almost all commodity futures are related to controlled commodities. The bodies that are responsible for monitoring controlled commodities market are Commodity Futures Trading Commission and National Futures Association (in the US). | ||
Without regulation of controlled commodities futures market participants could be subject to fraud and lose their capital. Nowadays problems on futures market are associated with modern technologies: | Without regulation of controlled commodities futures market participants could be subject to fraud and lose their capital. Nowadays problems on futures market are associated with modern technologies: | ||
* cloud computing, | * [[cloud computing]], | ||
* algorithmic trading, | * algorithmic trading, | ||
* distributed ledgers, | * distributed ledgers, | ||
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==Cloud Computing== | ==Cloud Computing== | ||
It consists of a remote access to the computing power of IT devices, offered by external entities, available on [[demand]] at any time. It does not require any significant investment costs associated with the construction of appropriate infrastructure. | It consists of a remote access to the computing power of IT devices, offered by external entities, available on [[demand]] at any time. It does not require any significant [[investment]] costs associated with the construction of appropriate infrastructure. | ||
To be able to use this, you must meet the following conditions: | To be able to use this, you must meet the following conditions: | ||
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There are several basic layers of cloud computing that depend on the package delivered to clients: | There are several basic layers of cloud computing that depend on the package delivered to clients: | ||
*'''IaaS''' - Infrastructure as a [[Service]] - the lowest available level of functionality in which we have at our disposal images of virtual machines provided by the service provider, which will have the computing power defined by us. | * '''IaaS''' - Infrastructure as a [[Service]] - the lowest available level of functionality in which we have at our disposal images of virtual machines provided by the service provider, which will have the computing power defined by us. | ||
*'''PaaS''' - Platform as a Service - the user has a platform built, for example, from many virtual machines and operating systems, which together create a large enough [[environment]], e.g. programming. | * '''PaaS''' - Platform as a Service - the user has a platform built, for example, from many virtual machines and operating systems, which together create a large enough [[environment]], e.g. programming. | ||
*'''SaaS''' - Software as a Service - It consists in providing a ready application (its graphical interface) or [[system]] functionality (Windows Sharepoint), without the [[need]] to interfere in their interior by the user | * '''SaaS''' - Software as a Service - It consists in providing a ready application (its graphical interface) or [[system]] functionality (Windows Sharepoint), without the [[need]] to interfere in their interior by the user<ref> Grance T., Mell P.</ref>. | ||
==Algorithmic Trading== | ==Algorithmic Trading== | ||
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Such sets of rules are based on time, [[price]], quantity or any mathematical model. | Such sets of rules are based on time, [[price]], quantity or any mathematical model. | ||
Algorithmic trading provides a more systematic approach to active trading. The largest part of today's algorithmic trading is HFT (High Frequency Trading). | Algorithmic trading provides a more [[systematic approach]] to active trading. The largest part of today's algorithmic trading is HFT (High Frequency Trading). | ||
Examples of Transaction Strategies: | Examples of Transaction Strategies: | ||
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* '''Arbitration opportunities''' - Purchase of variously listed companies at a lower price on one market and simultaneous sale at a higher price on another market. | * '''Arbitration opportunities''' - Purchase of variously listed companies at a lower price on one market and simultaneous sale at a higher price on another market. | ||
* '''The scope of trade''' - the assumption that high and low asset prices are a temporary phenomenon that periodically return to their average value. | * '''The scope of trade''' - the assumption that high and low asset prices are a temporary phenomenon that periodically return to their average value. | ||
* '''Strategies based on mathematical models''' - neutral delta trade strategies that allow trade in combinations of [[options]] and underlying safeguards <ref> Hendershott T., Riordan R. | * '''Strategies based on mathematical models''' - neutral delta trade strategies that allow trade in combinations of [[options]] and underlying safeguards <ref> Hendershott T., Riordan R. p. 1001-1005 </ref>. | ||
==Distributed Ledgers== | ==Distributed Ledgers== | ||
Blockchain, you can assume that it is a distributed [[database]] that maintains an ever-growing number of data records that are cryptographically protected against manipulation and an attempt to breach integrity. These are, in other words, cryptocurrencies. Bitcoin was the first major implementation of blockchain [[technology]]. That's why you can often see the translation of what blockchain is based on a bitcoin block chain. We use scattered accounting books to record financial transactions or economic events. | [[Blockchain]], you can assume that it is a distributed [[database]] that maintains an ever-growing number of data records that are cryptographically protected against manipulation and an attempt to breach integrity. These are, in other words, cryptocurrencies. Bitcoin was the first major implementation of blockchain [[technology]]. That's why you can often see the translation of what blockchain is based on a bitcoin block chain. We use scattered accounting books to record financial transactions or economic events. | ||
What is blockchain? | What is blockchain? | ||
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* '''Anonymity''', | * '''Anonymity''', | ||
* '''Independence''', | * '''Independence''', | ||
* '''Authentication''' <ref> Beck R., Muller-Bloch Ch. | * '''Authentication''' <ref> Beck R., Muller-Bloch Ch. p. 5391-5394 </ref> | ||
==Virtual Currencies== | ==Virtual Currencies== | ||
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* '''Bitcoin cash''' | * '''Bitcoin cash''' | ||
* '''Litecoin''' | * '''Litecoin''' | ||
* '''EOS''' <ref> Bolt, Wilko; van Oordt, Maarten R.C. | * '''EOS''' <ref> Bolt, Wilko; van Oordt, Maarten R.C. p. 1-5 </ref> | ||
==Examples of Controlled commodities== | ==Examples of Controlled commodities== | ||
* '''Oil and gas''': oil and gas are commodities that are heavily regulated by the Commodity Exchange Act. They are traded on the various exchanges such as the New York Mercantile Exchange (NYMEX), the Intercontinental Exchange (ICE), and the London-based ICE Futures Europe. | * '''Oil and gas''': oil and gas are commodities that are heavily regulated by the Commodity Exchange Act. They are traded on the various exchanges such as the New York Mercantile Exchange (NYMEX), the Intercontinental Exchange (ICE), and the London-based ICE Futures Europe. | ||
* '''Grains''': Grains are a type of agricultural commodity that are traded on several exchanges, including the Chicago Board of Trade (CBOT), the Kansas City Board of Trade (KCBOT), and the Minneapolis Grain Exchange (MGEX). These commodities are subject to the Commodity Exchange Act, and include corn, wheat, oats, soybeans, barley, and rice. | * '''Grains''': Grains are a type of agricultural commodity that are traded on several exchanges, including the Chicago [[Board]] of Trade (CBOT), the Kansas City Board of Trade (KCBOT), and the Minneapolis Grain Exchange (MGEX). These commodities are subject to the Commodity Exchange Act, and include corn, wheat, oats, soybeans, barley, and rice. | ||
* '''Gold''': Gold is one of the most actively traded controlled commodities, and is traded on the COMEX division of the New York Mercantile Exchange (NYMEX). Gold futures are subject to the rules of the Commodity Exchange Act, and are regularly monitored by the CFTC. | * '''Gold''': Gold is one of the most actively traded controlled commodities, and is traded on the COMEX division of the New York Mercantile Exchange (NYMEX). Gold futures are subject to the rules of the Commodity Exchange Act, and are regularly monitored by the CFTC. | ||
* '''Livestock''': Livestock, such as cattle, hogs, and sheep, are traded on the Chicago Mercantile Exchange (CME). The Commodity Exchange Act applies to these commodities, and the CFTC closely monitors the livestock market. | * '''Livestock''': Livestock, such as cattle, hogs, and sheep, are traded on the Chicago Mercantile Exchange (CME). The Commodity Exchange Act applies to these commodities, and the CFTC closely monitors the livestock market. | ||
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==Advantages of Controlled commodities== | ==Advantages of Controlled commodities== | ||
Controlled commodities offer a number of advantages, including: | Controlled commodities offer a number of advantages, including: | ||
* Improved transparency | * Improved transparency - The Commodities Exchange Act requires brokers to provide customers with detailed information about the terms and conditions of the transactions, including the prices and fees associated with them. This makes it easier for investors to make informed decisions about their [[investments]]. | ||
* Reduced Risk of Fraud | * Reduced [[Risk]] of Fraud - The regulations imposed by the Commodities Exchange Act make it more difficult for fraudsters to take advantage of investors. The regulations also make it easier for regulators to spot and prevent fraudulent activity. | ||
* Increased Liquidity | * Increased Liquidity - The Commodities Exchange Act encourages increased liquidity in the market by allowing market participants to buy and sell commodities more quickly and easily. This helps to ensure that prices remain competitive and that investors can take advantage of short-term trading opportunities. | ||
* Improved Price Discovery | * Improved Price Discovery - The regulations imposed by the Commodities Exchange Act help to ensure that prices reflect the underlying supply and demand dynamics of the commodities market. This helps to ensure that prices are fair and that investors have accurate information about the commodities they are investing in. | ||
==Limitations of Controlled commodities== | ==Limitations of Controlled commodities== | ||
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==Other approaches related to Controlled commodities== | ==Other approaches related to Controlled commodities== | ||
* '''Regulation of derivative markets''': This approach focuses on the regulation of derivative markets, such as commodity futures, to ensure that all stakeholders, including traders, producers and regulators, are following the rules established by the Commodities Exchange Act. | * '''Regulation of derivative markets''': This approach focuses on the regulation of derivative markets, such as commodity futures, to ensure that all [[stakeholders]], including traders, producers and regulators, are following the rules established by the Commodities Exchange Act. | ||
* '''Market surveillance''': This approach involves the monitoring of the commodity futures markets by the Commodity Futures Trading Commission and the National Futures Association, both of which are responsible for ensuring that the rules of the Commodities Exchange Act are being followed. | * '''Market surveillance''': This approach involves the monitoring of the commodity futures markets by the Commodity Futures Trading Commission and the National Futures Association, both of which are responsible for ensuring that the rules of the Commodities Exchange Act are being followed. | ||
* '''Price discovery and transparency''': This approach focuses on ensuring that all participants in the market are able to access accurate and timely information about current and future prices of commodities. | * '''Price discovery and transparency''': This approach focuses on ensuring that all participants in the market are able to access accurate and timely information about current and future prices of commodities. | ||
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In summary, controlled commodities are subject to a variety of approaches, including regulation of derivative markets, market surveillance, price discovery and transparency, and prevention of price manipulation. All of these approaches are designed to ensure that the commodities markets are fair and efficient, and that all participants have access to accurate and timely information about prices. | In summary, controlled commodities are subject to a variety of approaches, including regulation of derivative markets, market surveillance, price discovery and transparency, and prevention of price manipulation. All of these approaches are designed to ensure that the commodities markets are fair and efficient, and that all participants have access to accurate and timely information about prices. | ||
{{infobox5|list1={{i5link|a=[[Innovative investments]]}} — {{i5link|a=[[Span margin]]}} — {{i5link|a=[[EDI systems]]}} — {{i5link|a=[[Taaps]]}} — {{i5link|a=[[Capital Base]]}} — {{i5link|a=[[Premining]]}} — {{i5link|a=[[Funding Operations]]}} — {{i5link|a=[[Market disruption]]}} — {{i5link|a=[[Collateral management]]}} }} | |||
==References== | ==References== | ||
* Beck R., Muller-Bloch Ch. (2017) [https://scholarspace.manoa.hawaii.edu/bitstream/10125/41815/1/paper0666.pdf ''Blockchain as Radical Innovation: A Framework for Engaging with Distributed Ledgers''] | * Beck R., Muller-Bloch Ch. (2017) [https://scholarspace.manoa.hawaii.edu/bitstream/10125/41815/1/paper0666.pdf ''Blockchain as Radical Innovation: A Framework for Engaging with Distributed Ledgers''] "Hawaii International Conference on System Sciences", 978-0. | ||
* Bolt, Wilko; van Oordt, Maarten R. C (2016) [https://www.econstor.eu/bitstream/10419/148149/1/866744886.pdf ''On the value of virtual currencies''] | * Bolt, Wilko; van Oordt, Maarten R. C (2016) [https://www.econstor.eu/bitstream/10419/148149/1/866744886.pdf ''On the value of virtual currencies''] "Bank of Canada Staff Working Paper", No. 2016-42. | ||
* Commodity Futures Trading Commission, ''[https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm Commodity Exchange Act & Regulations]'' | * Commodity Futures Trading Commission, ''[https://www.cftc.gov/LawRegulation/CommodityExchangeAct/index.htm Commodity Exchange Act & Regulations]'' | ||
* Grance T., Mell P. (2011) [http://faculty.winthrop.edu/domanm/csci411/Handouts/NIST.pdf ''The NIST Definition of Cloud Computing''] | * Grance T., Mell P. (2011) [http://faculty.winthrop.edu/domanm/csci411/Handouts/NIST.pdf ''The NIST Definition of Cloud Computing''] "NIST Special Publication", 800-145. | ||
* Hendershott T., Riordan R. (2013) [https://faculty.haas.berkeley.edu/hender/ATMonitor.pdf ''Algorithmic Trading and the Market for Liquidity''] | * Hendershott T., Riordan R. (2013) [https://faculty.haas.berkeley.edu/hender/ATMonitor.pdf ''Algorithmic Trading and the Market for Liquidity''] "Journal of Financial and Quantitative Analysis" Vol. 48, No. 4. | ||
==Footnotes== | ==Footnotes== | ||
| Line 122: | Line 107: | ||
{{a|Agata Janusz}} | {{a|Agata Janusz}} | ||
[[Category:Stock exchange]] | [[Category:Stock exchange]] | ||
Latest revision as of 19:03, 17 November 2023
Controlled commodities are commodity futures that have to follow rules of the Commodities Exchange Act. The act established in 1936 rules that prevent fraud in the market of controlled commodities. Nowadays all major exchanges require using rules of Commodities Exchange Act, therefore almost all commodity futures are related to controlled commodities. The bodies that are responsible for monitoring controlled commodities market are Commodity Futures Trading Commission and National Futures Association (in the US).
Without regulation of controlled commodities futures market participants could be subject to fraud and lose their capital. Nowadays problems on futures market are associated with modern technologies:
- cloud computing,
- algorithmic trading,
- distributed ledgers,
- virtual currencies,
- artificial intelligence.
Cloud Computing
It consists of a remote access to the computing power of IT devices, offered by external entities, available on demand at any time. It does not require any significant investment costs associated with the construction of appropriate infrastructure.
To be able to use this, you must meet the following conditions:
- The pool of computational resources is available to each user.
- The pool of resources is virtualized in order to make the best use of IT devices.
- The resource pool of a given user is flexibly scaled depending on his needs.
- The process of creating new virtual machines and removing old ones is fully automated.
- Fees are charged only for the resources used.
There are several basic layers of cloud computing that depend on the package delivered to clients:
- IaaS - Infrastructure as a Service - the lowest available level of functionality in which we have at our disposal images of virtual machines provided by the service provider, which will have the computing power defined by us.
- PaaS - Platform as a Service - the user has a platform built, for example, from many virtual machines and operating systems, which together create a large enough environment, e.g. programming.
- SaaS - Software as a Service - It consists in providing a ready application (its graphical interface) or system functionality (Windows Sharepoint), without the need to interfere in their interior by the user[1].
Algorithmic Trading
It is the process of using computers to carry out a specific set of instructions in order to generate profits with speed and frequency impossible to obtain by the investor. Such sets of rules are based on time, price, quantity or any mathematical model.
Algorithmic trading provides a more systematic approach to active trading. The largest part of today's algorithmic trading is HFT (High Frequency Trading).
Examples of Transaction Strategies:
- Trend-based strategies - The most commonly used strategies in line with trends in moving averages, breaking channels, changing price levels and related technical indicators.
- Arbitration opportunities - Purchase of variously listed companies at a lower price on one market and simultaneous sale at a higher price on another market.
- The scope of trade - the assumption that high and low asset prices are a temporary phenomenon that periodically return to their average value.
- Strategies based on mathematical models - neutral delta trade strategies that allow trade in combinations of options and underlying safeguards [2].
Distributed Ledgers
Blockchain, you can assume that it is a distributed database that maintains an ever-growing number of data records that are cryptographically protected against manipulation and an attempt to breach integrity. These are, in other words, cryptocurrencies. Bitcoin was the first major implementation of blockchain technology. That's why you can often see the translation of what blockchain is based on a bitcoin block chain. We use scattered accounting books to record financial transactions or economic events.
What is blockchain? It is a distributed database in the open source model, without a centralized data storage space, used to post transactions, payments or accounting entries encoded using cryptographic algorithms. Blockchain is a public and public register that anyone can use.
Benefits:
- Safety,
- Decentralization,
- Publicity,
- Transparency,
- Anonymity,
- Independence,
- Authentication [3]
Virtual Currencies
Called cryptocurrencies - an accounting system based on cryptography that stores information. It is associated with individual system nodes, i.e. virtual wallets over which only private key holders have control.
The source code is usually based on free software that anyone can download and create their own coin. The goal is to collect the initial capital necessary for the further development of the system, as well as token marketing consisting in their use in promotional activities.
Examples of such cryptocurrencies:
- Bitcoin
- Ether / Etherum
- Ripple
- Bitcoin cash
- Litecoin
- EOS [4]
Examples of Controlled commodities
- Oil and gas: oil and gas are commodities that are heavily regulated by the Commodity Exchange Act. They are traded on the various exchanges such as the New York Mercantile Exchange (NYMEX), the Intercontinental Exchange (ICE), and the London-based ICE Futures Europe.
- Grains: Grains are a type of agricultural commodity that are traded on several exchanges, including the Chicago Board of Trade (CBOT), the Kansas City Board of Trade (KCBOT), and the Minneapolis Grain Exchange (MGEX). These commodities are subject to the Commodity Exchange Act, and include corn, wheat, oats, soybeans, barley, and rice.
- Gold: Gold is one of the most actively traded controlled commodities, and is traded on the COMEX division of the New York Mercantile Exchange (NYMEX). Gold futures are subject to the rules of the Commodity Exchange Act, and are regularly monitored by the CFTC.
- Livestock: Livestock, such as cattle, hogs, and sheep, are traded on the Chicago Mercantile Exchange (CME). The Commodity Exchange Act applies to these commodities, and the CFTC closely monitors the livestock market.
- Currencies: Currencies are also subject to the Commodity Exchange Act. The Foreign Exchange (Forex) market is an over-the-counter (OTC) market where currency futures are traded, and the CFTC closely monitors the Forex market to ensure compliance with the Commodity Exchange Act.
Advantages of Controlled commodities
Controlled commodities offer a number of advantages, including:
- Improved transparency - The Commodities Exchange Act requires brokers to provide customers with detailed information about the terms and conditions of the transactions, including the prices and fees associated with them. This makes it easier for investors to make informed decisions about their investments.
- Reduced Risk of Fraud - The regulations imposed by the Commodities Exchange Act make it more difficult for fraudsters to take advantage of investors. The regulations also make it easier for regulators to spot and prevent fraudulent activity.
- Increased Liquidity - The Commodities Exchange Act encourages increased liquidity in the market by allowing market participants to buy and sell commodities more quickly and easily. This helps to ensure that prices remain competitive and that investors can take advantage of short-term trading opportunities.
- Improved Price Discovery - The regulations imposed by the Commodities Exchange Act help to ensure that prices reflect the underlying supply and demand dynamics of the commodities market. This helps to ensure that prices are fair and that investors have accurate information about the commodities they are investing in.
Limitations of Controlled commodities
Controlled commodities have certain limitations that traders must be aware of:
- Speculative trading is limited in order to avoid excessive speculation and market manipulation.
- Position limits are imposed to prevent one trader from dominating the market.
- Margin requirements are set to limit the exposure of traders to the market and to maintain liquidity.
- Trading is done in standardized contracts that have specific terms and conditions.
- Hedging activities are limited to reduce risk in the market.
- Trading is monitored and regulated by federal agencies to ensure fair and orderly markets.
- Regulation of derivative markets: This approach focuses on the regulation of derivative markets, such as commodity futures, to ensure that all stakeholders, including traders, producers and regulators, are following the rules established by the Commodities Exchange Act.
- Market surveillance: This approach involves the monitoring of the commodity futures markets by the Commodity Futures Trading Commission and the National Futures Association, both of which are responsible for ensuring that the rules of the Commodities Exchange Act are being followed.
- Price discovery and transparency: This approach focuses on ensuring that all participants in the market are able to access accurate and timely information about current and future prices of commodities.
- Price manipulation: This approach focuses on preventing price manipulation and other fraudulent activities in the commodities markets.
In summary, controlled commodities are subject to a variety of approaches, including regulation of derivative markets, market surveillance, price discovery and transparency, and prevention of price manipulation. All of these approaches are designed to ensure that the commodities markets are fair and efficient, and that all participants have access to accurate and timely information about prices.
| Controlled commodities — recommended articles |
| Innovative investments — Span margin — EDI systems — Taaps — Capital Base — Premining — Funding Operations — Market disruption — Collateral management |
References
- Beck R., Muller-Bloch Ch. (2017) Blockchain as Radical Innovation: A Framework for Engaging with Distributed Ledgers "Hawaii International Conference on System Sciences", 978-0.
- Bolt, Wilko; van Oordt, Maarten R. C (2016) On the value of virtual currencies "Bank of Canada Staff Working Paper", No. 2016-42.
- Commodity Futures Trading Commission, Commodity Exchange Act & Regulations
- Grance T., Mell P. (2011) The NIST Definition of Cloud Computing "NIST Special Publication", 800-145.
- Hendershott T., Riordan R. (2013) Algorithmic Trading and the Market for Liquidity "Journal of Financial and Quantitative Analysis" Vol. 48, No. 4.
Footnotes
Author: Agata Janusz
