ethanol futures

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Ethanol Futures

Ethanol futures are standard, transferable, and exchange-traded contracts that entail the delivery of a specified quantity of ethanol at a fixed price on a future date. Futures convey a commitment to buy the commodity. The risk to both the holder and seller is unlimited because of a symmetrical payoff pattern. Dollars lost and gained by each party on a futures contract are equal and opposite, and represent a guarantee for a certain transaction in the future. Ethanol risk is managed by producers and consumers by buying and selling ethanol futures. Investors trade in ethanol futures by buying when they think the price will spike upward, and they sell when they anticipate a fall in prices.

The ethanol industry in America is experiencing a continued surge in economic growth. Low prices of grains, high crude oil prices, and dependence on crude oil are some of the contributing factors to the surge in the industry’s growth. Globally, sugar cane is the predominant crop used in the ethanol fuel production. In the US, corn is the primary crop for ethanol production. The sugar trade is the basis of the ethanol futures marketplace. A standard price is significant to the growth and stability of the ethanol industry. The New York Board of Trade has brought in some regulation with the creation of a world ethanol fuel futures and options marketplace.

Futures contracts are traded in a futures exchange, which are usually commodity exchanges. Future trading was synonymous with commodity trading when the first exchange was started in Chicago to trade contracts on commodities.

Global exchanges are present in developed and developing countries, and the ethanol futures is traded at the Chicago Board of Trade (CBOT) and the New York Mercantile Exchange (NYMEX). Fixed ethanol prices are set and achieved by basic contracts to NYMEX and CBOT ethanol futures. Both have advantages and disadvantages, and any decision for traders must take this into consideration. Check into ethanol exhange traded funds for more information on making money off the ethanol market.