In the popular 1983 film "Trading Places," Eddie Murphy and Dan Aykroyd play two men duped by successful commodities brokers, the Duke brothers. In the penultimate scene, the characters played by Murphy and Aykroyd conspire to turn the tables on the Dukes by passing to them a falsified early crop report showing an orange grove freeze. The Dukes bid up orange concentrate futures, while Murphy and Aykroyd take the other side of the trade. When the real crop report comes out showing normal weather, prices plummet. The Dukes lose their fortune; our heroes have their revenge and make a fortune.
Futures trading remains a specialized field due in part to the very leverage that brought down the fictional Duke Brothers. Futures are a contract to buy or sell something in the future at a certain price. That something can be a commodity like coffee or oil, or it can be a financial obligation like the S&P 500 Index or Treasury bonds. Real-world buyers and sellers (for instance, farmers and cereal companies) use futures to lock in prices ahead of delivery or need. Speculators and traders make directional bets for profit. Margin requirements are low for futures, but traders need to be well capitalized with cash collateral since, if the trade moves in the wrong direction, margin calls can quickly become multiples of the initial cash investment. Broker-dealers require investors to qualify to trade futures.
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