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Commodities & Futures Trading Flashcards

7 cards from real CPT practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Commodities & Futures Trading flashcards as text

  1. What is the 'basis' in commodity trading?

    Answer: The difference between the futures price and the spot price of a commodity

    The basis is calculated as the spot price minus the futures price and is used by hedgers to measure the relationship between cash and futures markets.

  2. A grain elevator manager sells wheat futures to lock in a price for upcoming harvest. This is an example of:

    Answer: Hedging

    Hedging involves taking an offsetting futures position to protect against adverse price movements in the physical commodity the business holds or expects to produce.

  3. Which commodity futures contract is priced in U.S. dollars per troy ounce?

    Answer: Gold

    Gold futures are quoted in U.S. dollars per troy ounce, with each standard COMEX contract covering 100 troy ounces.

  4. What does 'open interest' measure in a futures market?

    Answer: The total number of outstanding (unsettled) futures contracts

    Open interest is the total number of futures contracts that have been entered into and not yet offset by delivery, expiration, or an opposing transaction.

  5. What is a 'margin call' in futures trading?

    Answer: A request from a broker to deposit additional funds when account equity falls below the maintenance margin level

    A margin call occurs when losses reduce a trader's account balance below the maintenance margin threshold, requiring additional funds to be deposited promptly.

  6. Which of the following is a key feature that distinguishes futures contracts from forward contracts?

    Answer: Futures contracts are standardized and exchange-traded; forwards are customized and OTC

    Futures contracts are standardized agreements traded on regulated exchanges with daily mark-to-market, while forward contracts are customized OTC agreements between two parties.

  7. What is the 'limit move' rule in futures markets?

    Answer: A price movement restriction beyond which trading in that contract is halted or restricted for the day

    A limit move is a price change that reaches the daily maximum allowed by the exchange, which may halt trading or restrict orders to prevent extreme volatility.