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.