Futures contracts on palladium are actively traded on the NYMEX Exchange. Futures contracts play an important role for metal suppliers, commercial users, and for investors speculating in future price movements.

An example of hedging is if you are a farmer and you have 1000 pounds of wheat to sell you could either wait until harvest and sell your wheat at the current market price, or you could use a futures contract to “lock-in” the price today. If the farmer is satisfied with the price of wheat today then s/he will sell (or short) the appropriate wheat futures contract. By shorting the contract s/he is guaranteed today’s price at harvest time. How does that work? The gain or loss on the futures contract will equal the gain or loss on the market price at harvest time, we call this a perfect hedge. A mutual fund manager would use this same strategy but with index futures. s/he would short futures contracts on a stock index therefore reducing any downside risk for a certain period of time.

Risks associated with futures contracts apply mainly to speculators. Speculators take positions on their expectations of future price movement often with no intention of making or taking delivery of the commodity. They buy when they anticipate rising prices and sell when they anticipate declining prices. The reason futures carry high risk is because they are usually bought on margin, and each futures contract represents a large amount of the u nderlying asset. For example a futures contract might cost $10,000 but represent $100,000 in the commodity. Futures rules dictate the size of the deposit and the amount of the contract that can be purchased through the use of margin.

The Exchange is a public market forum and anyone can play a role in these vital global markets. Participation is not difficult, but a few requirements must be met. The first step is to open an account through a licensed, Series 3, commodity futures broker. The broker will be your point of entry to the markets, so make your selection with the same care and due diligence as you would any other financial services professional upon whom you rely.