EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Lesson 4 Introduction

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Overview

All orders placed on the NYMEX to buy or sell contracts are done in a very precise manner where each party involved is fully aware of the details of the transaction.There are specific nuances in the flow of the orders themselves. As legally-binding agreements, non-performance under a futures contract can have severe financial, and legal, consequences. Therefore, most phone conversations are recorded to ensure the accuracy of the orders placed as well as the results of the execution of those orders. Standardized Order Forms are used on the floor of the NYMEX during order execution. 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 ("strip"). In addition, electronic trading is becoming the main way in which these transactions are executed these days and the traditional "pits" are quickly becoming a thing of the past. In addition, "High Frequency Traders" (HFT) are using super-computers with complicated algorithms to trigger thousands of trades in mere nano-seconds. They have only added to the volatility in the marketplace.

Learning Outcomes

At the successful completion of this lesson, students should be able to:

  • Understand the order flow from the physical customer through the Exchange.
  • Recognize that very few contracts ever actually get delivered physically.
  • Understand the concept of the “zero-sum” game in financial contracts.
  • Know some primary terminology tied to financial commodity trading.
  • Become familiar with electronic trading for futures contracts.
  • Understand what "high frequency trading" is.

What is due for this lesson?

This lesson will take us one week to complete. There are a number of required activities in this module. The chart below provides an overview of the activities for this lesson. For assignment details, refer to the location noted.

All assignments will be due Sunday, 11:59 p.m. Eastern Time.

Lesson Requirements
REQUIREMENT LOCATION SUBMITTING YOUR WORK
Reading Assignment: Chapter 3
Video on High Frequency Trading
Errera & Brown
Mini-lecture page
No submission
Mini-lecture: NYMEX Order Flow Mini-lecture: NYMEX Order Flow page No submission
Lesson Activity: "Trading Places" video Lesson Activity page/Canvas Submit to activity in Canvas
Lesson Quiz
Fundamental Factors (on-going)
Summary and Final tasks page
Summary and Final tasks page
Submit through Canvas
Submit through Canvas

Questions?

If you have any questions, please post them to our General Course Questions discussion forum (not e-mail), located under Modules in Canvas. The TA and I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate.