Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Commodity Futures Trading Commission (CFTC)

What it is:

The Commodity Futures Trading Commission (CFTC), was established in 1974 as an independent government agency with the purpose of regulating commodity futures and options markets.

How it works (Example):

The Commodity Futures Trading Commission was established by a government mandate in 1974 to enforce rules stated in the Commodities Exchange Act. It is headed by five commissioners who are appointed by the President to serve staggered five year terms. The President (with approval from the Senate) selects one commissioner to be the Chairman. No more than three commissioners from the same political party can serve on the commission at any one time. The CFTC has offices in cities that have futures exchanges (Kansas City, New York and Chicago) as well as headquarters in Washington D.C.

Why it Matters:

The Commodity Futures Trading Commission regulates trading in futures exchanges. This regulation gives investors the peace of mind that prices of options and commodity futures are fair. Since commodity futures prices are based on predictions of commodity prices in the future, they have a great influence on prices of goods in both the future and present.

CFTC regulations are essential for creating fair markets and prices for commodities. Without regulation of commodity futures prices, sellers of commodity futures could essentially have complete control over the present price of commodities, thus creating completely unfair commodities markets. This would result in prices for all commodities and the countless goods produced from commodities being determined by arbitrary futures prices instead of overall market supply and demand. Countless hours of research and numerous studies are conducted by the CFTC in order to give investors and consumers reasonable prices of commodity futures and competitive prices of goods across the economy.

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