If you have been trading the currency markets, you will no doubt be aware of the value and role that cryptosporidium or bitcoins play in the markets. But what does the general public not know is that there are many other areas of the market which also feature high volatility. These other areas include; commodities, equities, bonds, commodities and ETFs. But what is the role of these and bitcoins in the futures markets?
Volatility also has a direct bearing on the risk/reward scenario as well, and thus a lot of research needs to go into the issue before one gets started with foreign exchange investing.
Various commodity contracts are in fact traded under the banner of ‘forex futures’ or ‘forex foreign exchange forwards’. Such contracts allow one to buy or sell food products at a particular date in the future for a pre-decided price.
However, like the CFTC, the Commodity Futures Trading Commission has been somewhat restrictive in its dealings in the forex futures arena in an attempt to maintain fairness amongst all participants in the market. For instance, unlike the CFTC, the CFC does not permit hedging instruments like forward contracts as well as option trading in the forex futures arena. In other words, if you are a futures speculator, you will not be permitted to trade futures positions, as the CFC requires that you trade options on the underlying commodities and currencies that you are trading futures for.
Another major difference between the CFTC and the Bitcoin is that the futures markets provide liquidity which allows traders to execute trades at higher volumes. These large orders can sometimes create significant volatility in the markets, and this has caused many CFTC members to sue the Commodities Futures Trading Commission for being improperly ordered in violation of their rules. It is not uncommon for a large CFTC member to seek other means of increasing market liquidity, such as via options. Options trading is used by some CFTC members to increase liquidity in the markets. However, options are limited to only one trade at a time and are subject to market maker’s fee and margin requirements.
The other major innovation in CFTC products relates to’smart contracts’ or programs that run on a distributed database platform. These smart contracts would allow buyers and sellers to interact with each other without the need for a broker. In fact, one could imagine such a system operating like a stock exchange where all transactions, no matter how small, are recorded in real-time. Such a system may not make use of CFTC commodities or indexes directly but instead by connecting to them via an online trading platform. Either way, such a system would enable traders to enter and exit trades based on real-time market data and prices that are visible to the trader and his affiliates.
CFTC commodities – specifically the CFTC index – are traded on an electronic trading platform and are therefore easier to access and navigate than traditional futures contracts. Because the CFTC is a US regulated agency, all trading activity in this category is overseen by federal government laws and regulations. This level of governmental supervision provides investors with a higher degree of confidence in these types of contracts. For instance, unlike traditional commodity markets which are largely unregulated, the CFTC makes sure that its commodity trading activities follow closely regulated standards set by the CFTC itself. In addition, unlike other trading floors or exchanges (such as those of the NYSE and NASDAQ), trading on CFTC marketplaces requires members to be registered brokers. This further adds to the legitimacy of the trades, which in turn, contributes to the high degree of security.
The future of trading on such currencies is therefore looking very bright indeed. There is no doubt that more institutional investors will start looking towards these types of derivatives products as a way of diversifying their portfolios and as a way of storing value. There are already many derivatives products out there in the markets and this means that the range of Cryptocurrencies available for trading will continue to increase. And that in itself will be a positive thing for the market because it shows that competition is healthy and good for business.
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