December 1, 2021

Volume XI, Number 335

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CFTC Issues Customer Advisory on Trading Based on Information Communicated Online

On April 6, the Commodity Futures Trading Commission’s (CFTC) Office of Customer Education and Outreach (OCEO) issued a Customer Advisory, reminding investors to understand fully how commodity futures markets, physical markets and securities markets differ before engaging in trading activity based on tips or other information communicated through social media. The CFTC noted that posts on online message boards and social media platforms have contributed to increasing volatility in the market. Recently, large numbers of investors have engaged in speculative short-term trading in commodity-backed exchange traded products (ETP), physical commodities, commodity futures and options. Many of these investors held on to their positions too long or did not understand the product or market in which they were trading.

Based on this recent trading activity, the OCEO reminded investors that there are risks associated with futures trading and buying physical commodities. In addition, the OCEO advised that investors should consider the following before engaging in trades that involve commodity futures or physical commodities: (1) only trade with “risk capital;” (2) experience in one market may not transfer to success in other markets; (3) know exactly what is in a commodity ETP and how its trading strategy can be affected by market forces; (4) better to develop your own trading plan than to follow others; (5) consider the source of your information; (6) investing in physical precious metals is not risk-free; and (7) beware of fraudsters using get-rich-quick promises.

The OCEO’s Customer Advisory

©2021 Katten Muchin Rosenman LLPNational Law Review, Volume XI, Number 99
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About this Author

Kevin M. Foley, Finance Lawyer, Katten Llaw Firm
Partner

Kevin M. Foley has extensive experience in commodities law and advises a wide range of clients, both in the United States and abroad, on compliance with the Commodity Exchange Act and the rules of the Commodity Futures Trading Commission (CFTC) affecting traditional exchange-traded products, as well as the over-the-counter markets involving swaps and other derivative instruments. His clients include futures commission merchants, derivatives clearing organizations, designated contract markets, foreign boards of trade and an industry trade association.

...

312-902-5372
Associate

Elizabeth White is an associate in the Financial Markets and Funds practice.

PRACTICES

  • Financial Markets and Funds

BAR ADMISSIONS

  • Illinois

312-902-5447
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