‘futures on the same or similar commodities can be traded on more than one exchange.’
i bumped into this sentence when reading through schweser notes. (futures contracts features.)
but this sounds too vague, can’t get what it means.,
first, what is it saying ‘same or similar’? and ‘more than one exchange’ at the same time?
different commodities surely be traded on individual (different) exchange. no doubt and no strange.
like, lets say there are crude oil and heating oil. they are traded on each exchange. so what? why this needs to be described as ‘features’ of futures contract?
if i’m thinking wrong, could you give me any example so that i can persuade myself and make it sense in my mind?
plus, does the ‘more than one exchange’ means like…
Regarding “same or similar” – take wheat as an example. Not all wheat is technically the same, though it is similar. There are hard red, soft red, white and durum varieties mainly grown. Contract specifications on the CME have suitable grades for delivery to satisfy the contract, or premiums/discounts associated with a different grade of wheat delivered. See this CME quick page on wheat futures specifications, under the “Deliverable Grade” row:
Regarding trading on different exchanges, this one is fairly straightforward. You can trade, for instance, gold futures on the CME, the Tokyo Commodity Exchange, and several others. The underlying asset in this case is the same, not similar (a troy ounce of gold is a troy ounce of gold, unlike wheat), but it is simply being traded on a different exchange. This is no different from the concept that I can buy the same stock on several different stock exchanges. In principle, the prices of all these futures contracts should all match after adjusting for exchange rates because if they did not, there would be an opportunity for arbitrage.
I can’t disagree with DoW’s comments on futures contracts.
More generally, as an FRM (with various other letters after my name too) I would advise anyone not to get bogged down in the text of the Schweser FRM notes: they’re just rough precis of the official texts, albeit with the occasional addition of supplementary material. It’s not complete garbage, but neither should it be taken as gospel.