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| Exchange FAQ |
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Q: How did the New York Mercantile Exchange start?
A: The Butter and Cheese Exchange of New York was founded in 1872 by a group of dairy merchants who were trying to bring order and standardization to the chaotic conditions that existed in their industry. Gradually, the product base was broadened and the name was changed to the New York Mercantile Exchange 10 years later. |
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Q: Does the Exchange still trade agricultural products?
A: Over the years, the Exchange shifted towards industrial products. It was the first Exchange to successfully trade energy futures and options with the introduction of the heating oil futures contract in 1978. Today, the Exchange is the world's preeminent energy market and precious metals markets; agricultural products do not trade on the Exchange. |
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Q: What is the difference between stocks and commodities?
A: Even though stocks and commodity futures are traded on exchanges, they are different instruments. A share of stock represents a position of ownership in a company. A commodity futures contract is an obligation for the holder of the contract to buy or sell a specific quantity of a particular commodity at a specific price and location at a specific date in the future. It is not tied to the product of a particular company, but rather a standardized product that is widely accepted throughout the relevant industry. |
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Q: Why does the Exchange operate through two divisions and what is the difference in their markets?
A: The Exchange's divisions, the NYMEX Division and the COMEX Division, were formed by the merger of the New York Mercantile Exchange and the Commodity Exchange, Inc., in 1994. The trading operations of each exchange were continued as the two divisions, offering trading in their respective futures and options contracts – energy, platinum, and palladium for the NYMEX Division; gold, silver, and copper on the COMEX Division (aluminum was added since the merger). Trading rights on each division are bought, sold, and leased separately, but there are occasions when cross-divisional trading privileges in specific markets are granted to the opposite division. |
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Q: What is a futures contract?
A: A futures contract is a binding, legal agreement between a buyer and a seller for delivery of a particular quantity of a commodity at a specified time, place, and price. Futures are used as a proxy for cash, or physical, transactions before actual purchases or sales. This allows the buyer to assess his costs in advance of purchase and the seller to value his inventory in advance of sale. |
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Q: What is an options contract?
A: An options contract gives the holder of the contract the right, but not the obligation to buy or sell the underlying futures contract at a certain price for a specified time. On the opposite side, the seller, or writer of an options contract incurs an obligation to perform should the options contract be exercised by the purchaser. |
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Q: What is the difference between volume and open interest?
A: Trading volume is the total number of contracts traded in a designated time (such as daily, monthly, annually). Open interest is the number of open or outstanding contracts at a given point in time for which the holders are obligated to the Exchange because no offsetting sale or purchase has been made against it. Open interest is frequently used as an indicator of the level of commercial as opposed to speculative activity in a particular futures or options contract, since hedgers are much more likely to hold long-term positions. |
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Q: How do I become a member of the Exchange?
A: Membership information and application forms can be found in the How to Become a Member section of the Exchange website. |
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Q: What is the difference between hedging and speculation?
A: Hedgers and speculators have different goals. Hedgers use the futures markets to help stabilize revenues or costs because they have an offsetting position in the physical market. They do not necessarily seek to profit in the futures markets because a gain or loss in the futures market is usually offset to some degree by the corresponding loss or gain in the physical market. Speculators, or investors, on the other hand, enter the market in order to profit from market volatility and the movement of futures prices because they have no offsetting physical positions. Speculators play a valuable role in assuming the risk of market losses that hedgers are seeking to shift, as well in providing liquidity and narrowing the gap between bids and offers that benefits the markets as a whole. |
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Q: What is the difference between Brent crude oil futures and options contracts and the light, sweet crude oil futures and options contracts? Why are both contracts listed?
A: The Exchange's light, sweet crude oil futures contract is the most liquid energy trading instrument on world markets as well as the most actively traded futures contract on any physical commodity. The contract, which is based on physical delivery, is widely used as the benchmark for determining crude oil and refined product prices in the United States and abroad. It provides for the delivery in the United States of several important domestic and imported crudes of similar quality. Brent crude oil, which can also be delivered under the light, sweet futures contract based on mid-continent pricing, is a North Sea crude widely used to determine crude oil prices in Europe and in other parts of the world. The Brent futures contract is based on prices in the North Sea and is financially settled. Together, the light, sweet crude oil futures contract and Brent crude are used as the basis for virtually every physical crude oil transaction. By offering a Brent crude oil futures contract for trading, the Exchange consolidates these key market indicators in a single trading forum with uniform rules and gives traders the capability to seamlessly and economically trade the Brent/light, sweet crude differential, an important market indicator. |
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Q: Does the Exchange set prices?
A: The Exchange does not set prices. The Exchange provides a neutral, orderly, and transparent trading forum where buyers and sellers can come together and publishes the prices that result from those transactions. The prices that emerge from trading are determined by supply and demand. If there are more buyers than sellers, the price goes up. If there are more sellers than buyers, it goes down. |
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Q: Why does it take 45 minutes to an hour to settle the futures market each day?
A: The settlement price is established by the Exchange settlement committee at the close of each trading session as the official price to be used by the clearinghouse in determining net gains or losses, margin requirements, and the next day's price limits. In contract months with significant activity, the settlement price is derived by calculating the weighted average of the prices at which trades were conducted during the closing range, a brief period at the end of the day. Contract months with little or no trading activity on a given day are settled based upon the spread relationships to the closest active contract month. After the close of trading, all closing range transactions must be entered into the Exchange computer system; there is a brief time window to resolve any discrepancies that arise during that period; the weighted average price is compiled; and the settlement committee must determine the spreads appropriate for those contract months with limited liquidity. |
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Q: Why is the settlement price different from the closing price?
A: Contract settlements are based on the weighted average of trades during the closing range so the settlement and last trade usually will not be identical. The closing range is the last two minutes of trading except on the last day, when it's the last half-hour. |
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Q: Can settlement data be outside the range of the day's high and low?
A: If volume in a specific trading month is limited, particularly near the closing range, those months will be settled based on their spread relationship to the nearest active month. |
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Q: Can I find spot cash prices on your site?
A: The Exchange offers trading in futures and options contracts based on delivery in the future. The closest month is commonly referred to as the spot month because its prices move in tandem with the spot/cash market but these transactions on the Exchange are not considered part of the cash market. |
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Q: What is the difference between futures and over-the-counter (OTC) trading?
A: Futures contracts are traded on the Exchange in an anonymous, open, and competitive auction. Pricing, trading volume, and open interest are publicly disseminated through market data vendors. Over-the-counter transactions are conducted between two private parties and specifications can be customized, although they generally reflect industry standards. The Exchange has eliminated one of the key concerns over doing business in the OTC market – counterparty credit risk – by offering its clearing services for deals transacted off-Exchange. This allows buyers and sellers to negotiate the price with trading partners of their choice with the full security of the Exchange clearinghouse behind them. Additionally, margin requirements for cleared OTC transactions are netted against other cleared positions on the Exchange, including futures and short options positions, reducing costs and improving cash flow. |
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Q: What is the difference between futures and options contracts and its OTC contracts?
A: The futures and options contracts are offered for trading on the Exchange and all deals must be transacted according to Exchange and CFTC rules. The forum is neutral, competitive and anonymous. Prices, volume, and open interest are publicly disseminated. The OTC contracts are not traded on the Exchange but simply serve as standards for deals that can be cleared on the Exchange following the completion of the transaction. Other than daily settlement prices, data on these products are not made available on a regular basis, consistent with OTC market practice. |
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Q: How does the clearinghouse protect market participants against counterparty default?
A: The clearinghouse is made up of the clearing members of the Exchange who accept responsibility for all trades cleared through them. Orders are "cleared" because the clearinghouse ultimately acts as the buyer to every seller and seller to every buyer once a trade has been accepted by the Exchange. The deep financial strength of the clearinghouse is based on the combined financial capability of the clearing member firms, which include the largest and most well-capitalized names in financial services. Clearing members must show a minimum working capital of $5 million. Clearing members must also make a deposit to the guarantee fund of the clearinghouse, which currently totals approximately $80 million for each division of the Exchange. In the event a clearing member fails to meet a margin payment, funds would be appropriated from 1) that clearing member's assets under Exchange control; 2) the Exchange's surplus as determined by the board of directors; 3) the guarantee fund; 4) funds based on a pro-rated assessment of other clearing members. Additionally, customer funds are always segregated from those of brokerage houses, clearing member firms, and the Exchange. |
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Q: Are there any regulations or procedures in place to prevent physical delivery?
A: Anyone who holds an Exchange futures contracts until expiration (with the exception of the financially settled Brent crude oil contract) is obligated to make or take physical delivery. Following the termination of trading, the counterparties are matched by the Exchange clearinghouse, obligating both parties to meet the terms of the contract, unless they mutually agree to an alternate delivery procedure (ADP). Use of an ADP also frees the clearinghouse of any obligation to make good in the event of a default on the transaction.
Market participants who do not have delivery capability are responsible for liquidating their positions prior to the termination of trading in the futures contract. The parties can also arrange for an exchange of futures for physicals (EFP). Under an EFP, the parties agree to exchange equal and opposite futures and physical market positions.
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Q: Are the prices for jet fuel or diesel fuel quoted on the Exchange?
A: Neither is traded on the Exchange, however, hedgers of jet fuel and diesel fuel tend to reference and make use of the heating oil and crude oil futures markets. Both products are similar in composition to heating oil. |
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Q: What is the difference between eligible and registered COMEX Division metals?
A: Registered metals are those metals which meet the standards for delivery under the gold, silver, copper, or aluminum futures contracts as stated in the COMEX Division rules and for which a receipt from an Exchange-approved depository or warehouse has been issued. Eligible metals are those which meet the delivery standards as stated in the rules for which no receipt from an Exchange-approved warehouse has been issued. |
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Q: If I buy an Exchange gold, silver, copper, aluminum, platinum, or palladium futures contract can I take delivery and what kind of paper would I get to prove ownership?
A: The futures contract can be held to delivery. At that time, you would receive a warrant (a certificate of title issued by the licensed depository or warehouse). Your receipt of the warrant completes delivery through the Exchange. If you wished to take physical possession of metal, is it your responsibility to arrange for its shipment from the depository or warehouse. |
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Q: If I owned physical silver in a depository could I lease the silver for the rates I keep hearing about; approximately 11% monthly?
A: The leasing of metal is a cash market transaction and it is usually done in London. |
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Q: What is a BEST transaction?
A: BEST (Book Entry Security) transaction is a fee charged to a COMEX Division clearing member firm when it makes a deposit or a withdrawal from its margin account. |
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Q: What is a market-maker?
A: Market-makers, also known as locals, provide critical liquidity in the futures and options markets by risking their own capital while seeking to profit from the market fluctuations during the trading day. Market makers compete in the market alongside floor brokers who act on behalf of customers. This differs from a specialist market maker which is an Exchange-designated trader who provides liquidity to a designated market by facilitating any trade within an established bid/ask spread and accepting all limit orders that it is required to execute. |
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Q: Can the Exchange's contracts be traded electronically?
A: The Exchange's futures contracts are available for trading on NYMEX ACCESS®, the Exchange's internet-based electronic trading system, after the trading floor closes for the day. Although the NYMEX ACCESS® trading session extends over approximately 17 hours, open outcry trading – the auction that takes place on the trading floor for six-and-a-half hours each day – is the primary market, accounting for 97% of Exchange volume. The open outcry trading session has greater liquidity and is usually faster-paced.
When NYMEX ACCESS® went into operation in 1993, it was one of the first electronic trading systems in commercial use. e-miNY energy futures(sm) trade exclusively electronically (hence the "e") and are offered through the Chicago Mercantile Exchange's GLOBEX® trading platform. The contracts are available for trading virtually around the clock. |
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Q: Are non-member trading privileges for the NYMEX ACCESS® electronic trading system limited to commercial users, or can individuals trading for their own account also sign up?
A: Non-members who are guaranteed by a clearing member can obtain a system ID and password to trade on the NYMEX Division. Trading COMEX Division futures contracts on the system is limited to COMEX Division seat-owners and individuals or trade firms who lease the electronic trading privileges from a COMEX Division member |
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Q: What are e-miNY energy futures(sm)?
A: e-miNYs are fractional crude oil and natural gas futures that are only
50% of the size of standard-sized futures contracts, offering smaller investors
and traders the opportunity to participate in the energy markets. The e-miNY
energy futuressm are available for trading nearly around the clock through
the Chicago Mercantile Exchange's GLOBEX® electronic trading system.
The contracts clear through the New York Mercantile Exchange clearinghouse.
GLOBEX® can be accessed through a direct hookup or through the internet.
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Q: How do I register as a futures professional?
A: The Commodity Futures Trading Commission (CFTC) has delegated registration responsibilities to the National Futures Association (NFA). The NFA website, www.nfa.futures.org, provides information about the registration process. The NFA Information Center can also be reached by telephone at (312) 781-1410. In addition, the NFA website includes several related publications that may be of assistance. |
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Q: How can I find out about a person or firm with whom I'm thinking about opening an account?
A: The NFA's Broker Registration and Background Information page includes links to the Background Affiliation Status Information Center (BASIC), through which National Futures Association (NFA) makes available registration information and futures-related actions contributed by NFA, the CFTC and the U.S. futures exchanges. The page also includes links to CFTC publications on CFTC actions and sanctions against firms and individuals |
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Q: Can I find out if the Exchange or CFTC is investigating a firm or individual?
A: Any inquiry or investigation by the Exchange or CFTC is confidential. The fact that these entities may investigate a firm or person generally will not be disclosed until either disciplinary action is taken in the case of the Exchange or a public proceeding is actually brought either before the Commission or in Federal court. |
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Q: Where can I get help if I have a problem with my broker or account?
A: If you have a dispute arising out of your commodity futures or options account, first try to resolve the problem with your broker and his or her supervisor at the firm which employs or guarantees the broker. If that fails, commodity futures customers have several options for resolving disputes: (1) the CFTC Reparations Program, (2) the NFA arbitration program; or (3) court litigation. In selecting a particular approach, you may want to consider the cost, length of time involved, and whether assistance of an attorney is required. |