LIFFE stands for the London International Futures and Options Exchange, and is based in London, England. The LIFFE Exchange is in the derivative business. The LIFFE Exchange also has operations in Brussels, Amsterdam, Lisbon, and Paris. Futures markets were created to help traders and agricultural producers try to manage the risk of the crop they harvest. Today, this premise is still used when trading futures markets.
In the world of commodity trading, we can classify traders into two classes: hedgers and speculators. A hedger watches the underlying commodity and looks to manage the risk of the changing prices. Speculators try to predict where a market’s price moves may be going, either up or down, and they try to position themselves to profit from the anticipated movement. Commodities are negatively correlated, and inflation has a lot to do with this. Commodities tend to be more successful when inflation increases, while bonds and stocks are less successful. Diversifying your portfolio and spreading risk to many different types of investments is a better choice most of the time. When one is going up the other could be going down and vice versa.
To put the aforementioned thoughts into perspective how much of the population of the world has grown? Look at the population levels in time periods. 200 years ago the world’s population reached 1 billion. 188 years later the population doubled, it reached over 2 billion in the year 1922. Here’s the scary number that should grab your attention: it took a little over 36 years for the population to grow to over 3 billion. Later in history, it took 15 years to get to four billion and 13 years to get to 5 billion, and 12 years to reach six billion. Consumption is at a higher level and that the population is growing at a record pace. An investor needs to realize that the economy can have troubles on a global scale. The world will always need food, shelter, water, and a means to travel to work, and gas to put into their vehicles. Does the importance in commodities and commodity futures transcend the normal lines of supply and demand?
The LIFFE handles all kinds of transactions for foreign and domestic investors alike. It can be valuable to educate yourself about the LIFFE.
Trading in futures and options involves a substantial risk of loss and is not suitable for all investors. Past performance is not necessarily indicative of future results.
