PrintAll orders placed on the NYMEX to buy or sell contracts are done in a very precise manner with each party involved fully aware of the details of the transaction. As legally-binding agreements, non-performance under a futures contract can have severe financial, and legal, consequences. Therefore, most phone conversations are taped to ensure the accuracy of the orders placed as well as the results of the execution of those orders. Standardized Order Forms are used during order execution and daily "check-outs" occur between Brokers and their clients for verification of all trades conducted that day. In this lesson, we will follow a natural gas futures contract trade from the beginning to end for a producer and end-user wishing to lock-in a fixed-price for a 12-month period.
Key Learning Points for the Mini-Lecture: NYMEX Order Flow
While watching the Mini-Lecture, keep in mind the following key points and questions:
- All orders must be placed with a “clearing” broker who guarantees the trades.
- Contracts can be used for pure trading or “hedging” physical and price risks.
- Physical trading companies provide risk services to their customers.
- Orders flow from customer’s representative through the financial trading process.
- “Fixed-price” desks place orders with NYMEX brokers who fill those with counterparties in the “pits.”
- Less than 2% of all contracts traded ever become physical transactions.
- Trading is a “zero sum” game. For every winner, there is a loser (there are two sides to every trade.)