Controlled commodities

Controlled commodities
See also
EDI systems Capital Base Taaps Finished goods inventory Foreign exchange reserves Trading Book Cash control Home market Examples of weaknesses

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. .

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 .

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

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

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