A:

A call rule is a rule used in the futures exchange market. It is a rule that requires the formal bidding amount of a cash commodity to be set at the end of each trading day. A cash commodity is the physical product that is being traded or is behind a futures contract. For example, if you buy a futures contract for corn, there is an actual load of corn somewhere that is going to be delivered when the contract is exercised.

The set bidding price is held until the beginning of the next day and anyone who wants to bid can only do so at that price. The reason the Commodity Futures Trading Commission (CFTC) established the call rule was to reduce the volatility and instability of overnight trading. The call rule ensures that the prices of commodities traded at the exchange begin everyday near the previous day's closing bid. Before the call rule was instituted, secret bids that favored a small number of traders took place overnight and those bids altered the opening prices the next day.

The Chicago Board of Trade adopted the call rule in 1906. Opponents of the rule believed it violated the Sherman Anti Trust Law, but the supreme court upheld the rule in a 1918 ruling.

For a primer on trading commodities, check out An Overview of Commodities Trading.

This question was answered by Chizoba Morah.

RELATED FAQS
  1. What is the difference between the rule of 70 and the rule of 72?

    Find out more about the rule of 70 and the rule of 72, what the two rules measure and the main difference between them. Read Answer >>
  2. Who sets the price of commodities?

    Commodities are extremely important as they are essential factors in the production of other goods. A wide of array of commodities ... Read Answer >>
  3. How can I invest online in oil, gold and other commodities?

  4. What can I use the Rule of 70 for?

    Discover how the rule of 70 works, and learn about some of the different ways it can be applied to future forecasting and ... Read Answer >>
  5. What is the downtick-uptick rule on the NYSE?

    To ensure orderly markets, the New York Stock Exchange (NYSE) has a set of restrictions that it can implement when experiencing ... Read Answer >>
  6. What kinds of restrictions does the SEC put on short selling?

    Learn about the rules and regulations on short selling enforced by the U.S. Securities and Exchange Commission, or SEC, including ... Read Answer >>
Related Articles
  1. Managing Wealth

    How To Invest In Commodities

    Find out which futures, options or funds will be your perfect commodity portfolio fit.
  2. Markets

    When Will it Be Safe to Buy Commodities?

    When will it be safe to buy commodities (and which ones)? A closer look at the commodities markets and how they move.
  3. Markets

    Understanding the Commodity Market

    There are currently 50 physical and virtual commodity markets worldwide where almost 100 primary commodities trade through the exchange of ownership rights.
  4. Managing Wealth

    The Role Of Speculators In The Commodity Market

    Contrary to popular belief, speculators are important for the market. Find out exactly what they do.
  5. Investing

    The Days of Rule 48 Are Coming to An End

    A look at the proposal to repeal the controversial Rule 48.
  6. Markets

    All About Liquid Commodities

    You might hear 'liquid commodities' and think of an auction, but they're actually a high-volume, fast paced financial product suitable for day traders.
  7. Investing

    What is Rule 48?

    Rule 48 is a tool used by market operators to expedite trading in the opening hour, during periods of extreme volatility.
  8. ETFs & Mutual Funds

    Commodity Funds 101

    These funds make investing in gold, oil or grain an easier prospect.
  9. ETFs & Mutual Funds

    DBC: PowerShares DB Commodity Tracking ETF

    Find out about the PowerShares DB Commodity Tracking ETF, and explore a detailed analysis of the fund that tracks 14 distinct commodities using futures contracts.
  10. Trading

    The Uptick Rule Debate

    This rule was deemed ineffective and repealed in 2007, but critics argue it protects the market from bear raids.
RELATED TERMS
  1. Call Rule

    A exchange rule whereby the official bidding price for a cash ...
  2. Commodities Exchange

    An entity, usually an incorporated non-profit association, that ...
  3. Against Actual

    An order between two traders looking to hedge their positions, ...
  4. Uptick Rule

    A former rule established by the SEC that requires that every ...
  5. Trade Or Fade Rule

    An options exchange rule that requires the market maker to either ...
  6. Cash Price

    The actual amount of money that is exchanged when commodities ...
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center