What is a call rule?

By Chizoba Morah AAA
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. For investors, what are the alternatives to owning physical gold?

    Learn some of the primary alternate ways that someone can invest in the gold market besides simply purchasing physical gold ...
  2. What developed countries have the greatest exposure to metals and mining?

    Learn about the three developed countries with the largest exposure to the metals and mining sector: Canada, Australia and ...
  3. What are tradable commodities?

    Understand what tradable commodities are as well as the rules and risks governing how they are sold and traded in the marketplace.
  4. What's the difference between a commodity and a product?

    Understand the difference between commodities and products, and learn how they are connected to each other and to market ...
RELATED TERMS
  1. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  2. Christmas tree (oil and gas)

    A vertical assembly of mechanical elements used in oil exploration ...
  3. FPSO (Floating Production Storage and Offloading)

    Acronym for Floating Production Storage and Offloading. FPSO ...
  4. Day rate (oil drilling)

    In oil production, a day rate is the amount a drilling contractor ...
  5. Houseable

    A piece of art that is able to fit inside a regular-sized living ...
  6. Cash-And-Carry Trade

    A trading strategy in which an investor buys a long position ...

You May Also Like

Related Articles
  1. Options & Futures

    Give Yourself More Options With Real ...

  2. Chart Advisor

    Commodity Traders Are Using Momentum ...

  3. Options & Futures

    The Future Is Now: All About Futures ...

  4. Chart Advisor

    Falling Copper Prices Will Drag These ...

  5. Chart Advisor

    Now Is The Time To Trade Industrial ...

Trading Center