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It might be the CBOT (Chicago Board of Trade) or the Mercantile Exchange. I know of two instances where somebody was speculating (not hedging) on grain or livestock prices and would either buy or sell large quantities of grain on “paper” hoping the market would move in their favor. Since it only takes a fraction of the value of the grain in order to have enough “margin” money to do it, it is easy to get some big numbers. For instance, you can buy 20,000 bushels of soybeans (roughly a $124,000 value today) on the board with $6480. (This is from the CBOT website). It only takes $4800 to maintain ownership of the same quantity of grain. If the soybean market moves $.60 cents the wrong way, this is a loss of $12,000 which can happen in just a couple days! Since the markets go up and down, some guys will try to add positions to offset losses, and if they get in wrong, the numbers can get big really fast! Don’t get me wrong, the CBOT and Mercantile Exchange have their place in hedging, but you better know EXACTLY what you are doing, have a reasonable plan, and a broker that won’t be calling you every day trying to get you out of a “bad position” when that position has a decent profit locked in for you. Remember, brokers get paid only when they make a trade, not by the hour…
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