Commodity and Energy Markets and Derivatives

Overview/Description
The commodities and energy markets are generally considered to be some of the largest markets in existence. Every day billions of dollars of commodities such as oil, coal, gold, and sugar are bought and sold between various traders acting on behalf of producers, manufacturers, and financial institutions. The derivatives market has seen explosive growth around these markets over the decades. Although traditionally used by farmers and other manufacturers to protect themselves against price movements that would affect their profitability, derivatives are now widely used by many financial institutions as a way to profit on speculation and arbitrage. Financial institutions, such as banks and hedge funds, are profit seekers by their inherent nature and are willing to take risks in return for these profits. Hedgers, on the other hand, look to protect themselves by removing risk or hedging. These two different points of view complement each other and have allowed the market to grow rapidly and become quite liquid— for every hedger there is almost always a speculator willing to take the opposite side of the trade. This course covers the fundamental characteristics of the commodities and energy markets. We examine the types of underlying products that are traded, such as various metals and energy producing chemicals, and we also examine what they are used for. We then identify various financial contracts known as derivatives whereby these products may be bought or sold at a predetermined price, in specific quantities, and for delivery at a future date. The course focuses on the features of forward and futures commodity contracts and swap and option commodity contracts and their uses for hedging, speculation, and arbitrage.

Target Audience
Financial services professionals, consultants, sales professionals interested in providing or selling products and services to banks, investment companies, other financial corporations, and everyone interested in understanding commodity and financial futures and forwards

Expected Duration (hours)
1.0

Lesson Objectives

Commodity and Energy Markets and Derivatives

• identify the importance of commodity markets
• identify the major types of commodities
• identify characteristics of the energy markets
• identify characteristics of commodity and energy markets
• define widely used trading activities and products
• identify commodity categories
• recognize the different users of commodity contracts
• recognize characteristics of commodity derivatives