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Below are from the Wikipedia® encyclopedia about Futures, Futures Markets: Crude Oil Futures, Natural Gas Futures, Heating Oil Futures, Gold Futures
Futures
In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity of standardized quality (which, in many cases, may be such non-traditional "commodities" as foreign currencies, commercial or government paper [e.g., bonds], or "baskets" of corporate equity ["stock indices"] or other financial instruments) at a certain date in the future, at a price (the futures price) determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. The future date is called the delivery date or final settlement date. The official price of the futures contract at the end of a day's trading session on the exchange is called the settlement price for that day of business on the exchange. A futures contract gives the holder the obligation to make or take delivery under the terms of the contract, whereas an option grants the buyer the right, but not the obligation, to establish a position previously held by the seller of the option. In other words, the owner of an options contract may exercise the contract, but both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the underlying asset to the buyer, or, if it is a cash-settled futures contract, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position has to offset his/her position by either selling a long position or buying back (covering) a short position, effectively closing out the futures position and its contract obligations. Futures contracts, or simply futures, (but not future or future contract) are exchange traded derivatives. The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, and crucially also provides a mechanism for settlement.
Origin - The first recorded futures contracts were made in the Dojima Rice Exchange in Japan in the 1730s; to meet the needs of Samurai who - being paid in rice and after a series of bad harvests - needed a stable conversion to coin.
Futures vs. Forwards - While futures and forward contracts are both contracts to deliver an asset on a future date at a prearranged price, they are different in two main respects: Futures are exchange-traded, while forwards are traded over-the-counter. Thus futures are standardized and face an exchange, while forwards are customized and face a non-exchange counterparty. Futures are margined, while forwards are not. Thus futures have significantly less credit risk, and have different funding.
Exchange vs. OTC - Futures are always traded on an exchange, whereas forwards always trade over-the-counter, or can simply be a signed contract between two parties. Thus:Futures are highly standardised, being exchange-traded, whereas forwards can be unique, being over-the-counter. In the case of physical delivery, the forward contract specifies to whom to make the delivery. The counterparty for delivery on a futures contract is chosen by the clearing house.
Margining
To minimize credit risk to the exchange, traders must post a margin or a performance bond, typically 5%-15% of the contract's value. Margin requirements are waived or reduced in some cases for hedgers who have physical ownership of the covered commodity or spread traders who have offsetting contracts balancing the position. Clearing margin are financial safeguards to ensure that companies or corporations perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers. Customer margin Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract obligations. Futures Commission Merchants are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance bond margin. Initial margin is the money required to open a derivatives position (in futures, forex or CFDs) It is a security deposit to ensure that traders have sufficient funds to meet any potential loss from a trade. If a position involves an exchange-traded product, the amount or percentage of initial margin is set by the exchange concerned. In case of loss or if the value of the initial margin is being eroded, the broker will make a margin call in order to restore the amount of initial margin available. Often referred to as “variation margin”, margin called for this reason is usually done on a daily basis, however, in times of high volatility a broker can make a margin call or calls intra-day. Calls for margin are usually expected to be paid and received on the same day. If not, the broker has the right to close sufficient positions to meet the amount called by way of margin. After the position is closed-out the client is liable for any resulting deficit in the client’s account. Some US Exchanges also use the term “maintenance margin”, which in effect defines by how much the value of the initial margin can reduce before a margin call is made. However, most non-US brokers only use the term “initial margin” and “variation margin”. The Initial Margin requirement is established by the Futures exchange, in contrast to other securities Initial Margin which is set by the Federal Reserve in the U.S. Markets. A futures account is marked to market daily. If the margin drops below the margin maintenance requirement established by the exchange listing the futures, a margin call will be issued to bring the account back up to the required level. Maintenance margin A set minimum margin per outstanding futures contract that a customer must maintain in his margin account. Margin-equity ratio is a term used by speculators, representing the amount of their trading capital that is being held as margin at any particular time. The low margin requirements of futures results in substantial leverage of the investment. However, the exchanges require a minimum amount that varies depending on the contract and the trader. The broker may set the requirement higher, but may not set it lower. A trader, of course, can set it above that, if he doesn't want to be subject to margin calls. Performance bond margin The amount of money deposited by both a buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit. Return on margin (ROM) is often used to judge performance because it represents the gain or loss compared to the exchange’s perceived risk as reflected in required margin. ROM may be calculated (realized return) / (initial margin). The Annualized ROM is equal to (ROM+1)(year/trade_duration)-1. For example if a trader earns 10% on margin in two months, that would be about 77% annualized
Nonconvergence
This section may contain original research or unverified claims. Please improve the article by adding references. See the talk page for details. (April 2008) Some exchanges tolerate 'nonconvergence', the failure of futures contracts and the value of the physical commodities they represent to reach the same value on 'contract settlement' day at the designated delivery points. An example of this is the CBOT (Chicago Board of Trade) Soft Red Winter wheat (SRW) futures. SRW futures have settled more than 20¢ apart on settlement day and as much as $1.00 difference between settlement days. Only a few participants holding CBOT SRW futures contracts are qualified by the CBOT to make or receive delivery of commodities to settle futures contracts. Therefore, it's impossible for almost any individual producer to 'hedge' efficiently when relying on the final settlement of a futures contract for SRW. The trend is the CBOT continuing to restrict those entities who can actually participate in settling contracts with commodity to only those that can ship or receive large quantities of railroad cars and multiple barges at a few selected sites. The Commodity Futures Trading Commission, which has oversight of the futures market, has made no comment as to why this trend is allowed to continue since economic theory and CBOT publications maintain that convergence of contracts with the price of the underlying commodity they represent is the basis of integrity for a futures market. It follows that the function of 'price discovery', the ability of the markets to discern the appropriate value of a commodity reflecting current conditions, is degraded in relation to the discrepancy in price and the inability of producers to enforce contracts with the commodities they represent.[2]
Standardization
Futures contracts ensure their liquidity by being highly standardized, usually by specifying:
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The underlying asset or instrument. This could be anything from a barrel of crude oil to a short term interest rate.
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The type of settlement, either cash settlement or physical settlement.
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The amount and units of the underlying asset per contract. This can be the notional amount of bonds, a fixed number of barrels of oil, units of foreign currency, the notional amount of the deposit over which the short term interest rate is traded, etc.
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The currency in which the futures contract is quoted.
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The grade of the deliverable. In the case of bonds, this specifies which bonds can be delivered. In the case of physical commodities, this specifies not only the quality of the underlying goods but also the manner and location of delivery. For example, the NYMEX Light Sweet Crude Oil contract specifies the acceptable sulphur content and API specific gravity, as well as the pricing point -- the location where delivery must be made.
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The last trading date.
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Other details such as the commodity tick, the minimum permissible price fluctuation.
Margin
To minimize credit risk to the exchange, traders must post a margin or a performance bond, typically 5%-15% of the contract's value. Margin requirements are waived or reduced in some cases for hedgers who have physical ownership of the covered commodity or spread traders who have offsetting contracts balancing the position
Clearing margin are financial safeguards to ensure that companies or corporations perform on their customers' open futures and options contracts. Clearing margins are distinct from customer margins that individual buyers and sellers of futures and options contracts are required to deposit with brokers.
Customer margin Within the futures industry, financial guarantees required of both buyers and sellers of futures contracts and sellers of options contracts to ensure fulfillment of contract obligations. Futures Commission Merchants are responsible for overseeing customer margin accounts. Margins are determined on the basis of market risk and contract value. Also referred to as performance bond margin.
Initial margin is the money required to open a derivatives position (in futures, forex or CFDs) It is a security deposit to ensure that traders have sufficient funds to meet any potential loss from a trade. If a position involves an exchange-traded product, the amount or percentage of initial margin is set by the exchange concerned. In case of loss or if the value of the initial margin is being eroded, the broker will make a margin call in order to restore the amount of initial margin available. Often referred to as “variation margin”, margin called for this reason is usually done on a daily basis, however, in times of high volatility a broker can make a margin call or calls intra-day. Calls for margin are usually expected to be paid and received on the same day. If not, the broker has the right to close sufficient positions to meet the amount called by way of margin. After the position is closed-out the client is liable for any resulting deficit in the client’s account. Some US Exchanges also use the term “maintenance margin”, which in effect defines by how much the value of the initial margin can reduce before a margin call is made. However, most non-US brokers only use the term “initial margin” and “variation margin”. The Initial Margin requirement is established by the Futures exchange, in contrast to other securities Initial Margin which is set by the Federal Reserve in the U.S. Markets.A futures account is marked to market daily. If the margin drops below the margin maintenance requirement established by the exchange listing the futures, a margin call will be issued to bring the account back up to the required level.
Maintenance margin A set minimum margin per outstanding futures contract that a customer must maintain in his margin account.
Margin-equity ratio is a term used by speculators, representing the amount of their trading capital that is being held as margin at any particular time. The low margin requirements of futures results in substantial leverage of the investment. However, the exchanges require a minimum amount that varies depending on the contract and the trader. The broker may set the requirement higher, but may not set it lower. A trader, of course, can set it above that, if he doesn't want to be subject to margin calls.
Performance bond margin The amount of money deposited by both a buyer and seller of a futures contract or an options seller to ensure performance of the term of the contract. Margin in commodities is not a payment of equity or down payment on the commodity itself, but rather it is a security deposit.
Return on margin (ROM) is often used to judge performance because it represents the gain or loss compared to the exchange’s perceived risk as reflected in required margin. ROM may be calculated (realized return) / (initial margin). The Annualized ROM is equal to (ROM+1)(year/trade_duration)-1. For example if a trader earns 10% on margin in two months, that would be about 77% annualized.
Settlement
The situation where the price of a commodity for future delivery is higher than the spot price, or where a far future delivery price is higher than a nearer future delivery, is known as contango. The reverse, where the price of a commodity for future delivery is lower than the spot price, or where a far future delivery price is lower than a nearer future delivery, is known as backwardation. When the deliverable asset exists in plentiful supply, or may be freely created, then the price of a future is determined via arbitrage arguments. The forward price represents the expected future value of the underlying discounted at the risk free rate—as any deviation from the theoretical price will afford investors a riskless profit opportunity and should be arbitraged away; see rational pricing of futures. Thus, for a simple, non-dividend paying asset, the value of the future/forward, F(t), will be found by compounding the present value S(t) at time t to maturity T by the rate of risk-free return r.or, with continuous compounding This relationship may be modified for storage costs, dividends, dividend yields, and convenience yields. In a perfect market the relationship between futures and spot prices depends only on the above variables; in practice there are various market imperfections (transaction costs, differential borrowing and lending rates, restrictions on short selling) that prevent complete arbitrage. Thus, the futures price in fact varies within arbitrage boundaries around the theoretical price. The above relationship, therefore, is typical for stock index futures, treasury bond futures, and futures on physical commodities when they are in supply (e.g. on corn after the harvest). However, when the deliverable commodity is not in plentiful supply or when it does not yet exist, for example on wheat before the harvest or on Eurodollar Futures or Federal funds rate futures (in which the supposed underlying instrument is to be created upon the delivery date), the futures price cannot be fixed by arbitrage. In this scenario there is only one force setting the price, which is simple supply and demand for the future asset, as expressed by supply and demand for the futures contract. In a deep and liquid market, this supply and demand would be expected to balance out at a price which represents an unbiased expectation of the future price of the actual asset and so be given by the simple relationship In fact, this relationship will hold in a no-arbitrage setting when we take expectations with respect to the risk-neutral probability. In other words: a futures price is martingale with respect to the risk-neutral probability. With this pricing rule, a speculator is expected to break even when the futures market fairly prices the deliverable commodity. In a shallow and illiquid market, or in a market in which large quantities of the deliverable asset have been deliberately withheld from market participants (an illegal action known as cornering the market), the market clearing price for the future may still represent the balance between supply and demand but the relationship between this price and the expected future price of the asset can break down.
Futures contracts and exchanges
There are many different kinds of futures contracts, reflecting the many different kinds of tradable assets of which they are derivatives. For information on futures markets in specific underlying commodity markets, follow the links. For a list of tradable commodities futures contracts, see List of traded commodities.
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Foreign exchange market
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Money market
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Bond market
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Equity index market
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Soft Commodities market
Trading on commodities began in Japan in the 18th century with the trading of rice and silk, and similarly in Holland with tulip bulbs. Trading in the US began in the mid 19th century, when central grain markets were established and a marketplace was created for farmers to bring their commodities and sell them either for immediate delivery (also called spot or cash market) or for forward delivery. These forward contracts were private contracts between buyers and sellers and became the forerunner to today's exchange-traded futures contracts. Although contract trading began with traditional commodities such grains, meat and livestock, exchange trading has expanded to include metals, energy, currency and currency indexes, equities and equity indexes, government interest rates and private interest rates.
Contracts on financial instruments was introduced in the 1970s by the Chicago Mercantile Exchange(CME) and these instruments became hugely successful and quickly overtook commodities futures in terms of trading volume and global accessibility to the markets. This innovation led to the introduction of many new futures exchanges worldwide, such as the London International Financial Futures Exchange in 1982 (now Euronext.liffe), Deutsche Terminbörse (now Eurex) and the Tokyo Commodity Exchange (TOCOM). Today, there are more than 75 futures and futures options exchanges worldwide trading to include:
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CME Group (formerly CBOT and CME) -- Currencies, Various Interest Rate derivatives (including US Bonds); Agricultural (Corn, Soybeans, Soy Products, Wheat, Pork, Cattle, Butter, Milk); Index (Dow Jones Industrial Average); Metals (Gold, Silver), Index (NASDAQ, S&P, etc) ICE Futures - the International Petroleum Exchange trades energy including crude oil, heating oil, natural gas and unleaded gas and merged with IntercontinentalExchange(ICE)to form ICE Futures.
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Liffe
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South African Futures Exchange - SAFEX
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Sydney Futures Exchange
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London Commodity Exchange - softs: grains and meats. Inactive market in Baltic Exchange shipping.
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Tokyo Stock Exchange TSE (JGB Futures, TOPIX Futures)
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Tokyo Commodity Exchange TOCOM
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Tokyo Financial Exchange TFX (Euroyen Futures, OverNight CallRate Futures, SpotNext RepoRate Futures)
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Osaka Securities Exchange OSE (Nikkei Futures, RNP Futures)
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London Metal Exchange - metals: copper, aluminium, lead, zinc, nickel ,tin and steel
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New York Board of Trade - softs: cocoa, coffee, cotton, ornge juicea, sugar
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New York Mercantile Exchange - energy and metals: crude oil, gasoline, heating oil, natural gas, coal, propane, gold, silver, platinum, copper, aluminum and palladium
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Dubai Mercantile Exchange
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Singapore International Monetary Exchange (SIMEX)
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Futures on many Single-stock futures
Who trades futures?
Futures traders are traditionally placed in one of two groups: hedgers, who have an interest in the underlying commodity and are seeking to hedge out the risk of price changes; and speculators, who seek to make a profit by predicting market moves and buying a commodity "on paper" for which they have no practical use. Hedgers typically include producers and consumers of a commodity. For example, in traditional commodity markets, farmers often sell futures contracts for the crops and livestock they produce to guarantee a certain price, making it easier for them to plan. Similarly, livestock producers often purchase futures to cover their feed costs, so that they can plan on a fixed cost for feed. In modern (financial) markets, "producers" of interest rate swaps or equity derivative products will use financial futures or equity index futures to reduce or remove the risk on the swap. The social utility of futures markets is considered to be mainly in the transfer of risk, and increase liquidity between traders with different risk and time preferences, from a hedger to a speculator for example.
Options on futures
In many cases, options are traded on futures. A put is the option to sell a futures contract, and a call is the option to buy a futures contract. For both, the option strike price is the specified futures price at which the future is traded if the option is exercised. See the Black-Scholes model, which is the most popular method for pricing these option contracts.
Futures Contract Regulations
All futures transactions in the United States are regulated by the Commodity Futures Trading Commission (CFTC), an independent agency of the United States government. The Commission has the right to hand out fines and other punishments for an individual or company who breaks any rules. Although by law the commission regulates all transactions, each exchange can have its own rule, and under contract can fine companies for different things or extend the fine that the CFTC hands out.
The CFTC publishes weekly reports containing details of the open interest of market participants for each market-segment that has more than 20 participants. These reports are released every Friday (including data from the previous Tuesday) and contain data on open interest split by reportable and non-reportable open interest as well as commercial and non-commercial open interest. This type of report is referred to as 'Commitments-Of-Traders'-Report, COT-Report or simply COTR
Futures exchange
A futures exchange is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future.
History of futures exchanges
Though the origins of futures trading can supposedly be traced to Ancient Greek or Phoenician times,[citation needed] the first modern organized futures exchange began in 1710 at the Dojima Rice Exchange in Osaka, Japan.[1]
The United States followed in the early 1800s. Chicago is located at the base of the Great Lakes, close to the farmlands and cattle country of the U.S. Midwest, making it a natural center for transportation, distribution and trading of agricultural produce. Gluts and shortages of these products caused chaotic fluctuations in price, and this led to the development of a market enabling grain merchants, processors, and agriculture companies to trade in "to arrive" or "cash forward" contracts to insulate them from the risk of adverse price change and enable them to hedge.
Forward contracts were standard at the time. However, most forward contracts weren't honored by both the buyer and the seller. For instance, if the buyer of a corn forward contract made an agreement to buy corn, and at the time of delivery the price of corn differed dramatically from the original contract price, either the buyer or the seller would back out. Additionally, the forward contracts market was very illiquid and an exchange was needed that would bring together a market to find potential buyers and sellers of a commodity instead of making people bear the burden of finding a buyer or seller.
In 1848, the Chicago Board of Trade (CBOT – the world's first modern futures exchange) was formed. Trading was originally in forward contracts; the first contract (on corn) was written on March 13, 1851. In 1865, standardized futures contracts were introduced.
The Chicago Produce Exchange was established in 1874, renamed the Chicago Butter and Egg Board in 1898 and then reorganised into the Chicago Mercantile Exchange (CME) in 1919. In 1972 the International Monetary Market (IMM), a division of the CME, was formed to offer futures contracts in foreign currencies: British pound, Canadian dollar, German mark, Japanese yen, Mexican peso, and Swiss franc.
In 1881, a regional market was founded in Minneapolis, Minnesota and in 1883 introduced futures for the first time. Trading continuously since then, today the Minneapolis Grain Exchange (MGEX) is the only exchange for hard red spring wheat futures and options.[2]
Later in the 1970s saw the development of the financial futures contracts, which allowed trading in the future value of interest rates. These (in particular the 90-day Eurodollar contract introduced in 1981) had an enormous impact on the development of the interest rate swap market.
Today, the futures markets have far outgrown their agricultural origins. With the addition of the New York Mercantile Exchange (NYMEX) the trading and hedging of financial products using futures dwarfs the traditional commodity markets, and plays a major role in the global financial system, trading over 1.5 trillion U.S. dollars per day in 2005.
The recent history of these exchanges (Aug 2006) finds the Chicago Mercantile Exchange trading more than 70% of its Futures contracts on its "Globex" trading platform and this trend is rising daily. It counts for over 45.5 Billion dollars of nominal trade (over 1 million contracts) every single day in "electronic trading" as opposed to open outcry trading of Futures, Options and Derivatives.
In June 2001, ICE (IntercontinentalExchange) acquired the International Petroleum Exchange (IPE), now ICE Futures, which operated Europe’s leading open-outcry energy futures exchange. Since 2003, ICE has partnered with the Chicago Climate Exchange (CCX) to host its electronic marketplace. In April 2005, the entire ICE portfolio of energy futures became fully electronic.
In 2006, the New York Stock Exchange teamed up with the Amsterdam-Brussels-Lisbon-Paris Exchanges "Euronext" electronic exchange to form the first trans-continental Futures and Options Exchange. These two developments as well as the sharp growth of internet Futures trading platforms developed by a number of trading companies clearly points to a race to total internet trading of Futures and Options in the coming years.
In terms of trading volume, the National Stock Exchange of India in Mumbai is the largest stock futures trading exchange in the world, followed by JSE Limited in Sandton, Gauteng, South Africa [1].
Nature of contracts
Exchange-traded contracts are standardized by the exchanges where they trade. The contract details what asset is to be bought or sold, and how, when, where and in what quantity it is to be delivered. The terms also specify the currency in which the contract will trade, minimum tick value, and the last trading day and expiry or delivery month. Standardized commodity futures contracts may also contain provisions for adjusting the contracted price based on deviations from the "standard" commodity, for example, a contract might specify delivery of heavier USDA Number 1 oats at par value but permit delivery of Number 2 oats for a certain seller's penalty per bushel.
Before the market opens on the first day of trading a new futures contract, there is a specification but no actual contracts exist. Futures contracts are not issued like other securities, but are "created" whenever Open interest increases; that is, when one party first buys (goes long) a contract from another party (who goes short). Contracts are also "destroyed" in the opposite manner whenever Open interest decreases because traders resell to reduce their long positions or rebuy to reduce their short positions.
Speculators on futures price fluctuations who do not intend to make or take ultimate delivery must take care to "zero their positions" prior to the contract's expiry. After expiry, each contract will be settled , either by physical delivery (typically for commodity underlyings) or by a cash settlement (typically for financial underlyings). The contracts ultimately are not between the original buyer and the original seller, but between the holders at expiry and the exchange. Because a contract may pass through many hands after it is created by its initial purchase and sale, or even be liquidated, settling parties do not know with whom they have ultimately traded.
Compare this with other securities, in which there is a primary market when an issuer issues the security, and a secondary market where the security is later traded independently of the issuer. Legally, the security represents an obligation of the issuer rather than the buyer and seller; even if the issuer buys back some securities, they still exist. Only if they are legally cancelled can they disappear.
Standardization
The contracts traded on futures exchanges are always standardized. In principle, the parameters to define a contract are endless (see for instance in futures contract). To make sure liquidity is high, there is only a limited number of standardized contracts.
Derivatives Clearing
There is usually a division of responsibility between provision of trading facility and settlement of those trades. While derivative exchanges like the CBOE and LIFFE take responsibility for providing efficient, transparent and orderly trading environments, settlement of the resulting trades are usually handled by Clearing Corporations, also known as Clearing Houses, that serve as central counterparties to trades done in the respective exchanges. For instance, the Options Clearing Corporation and the London Clearing House respectively are the clearing corporations for CBOE and LIFFE. A well known exception to this is the case of Chicago Mercantile Exchange, which clears trades by itself.
Central Counterparty
Derivative contracts are leveraged positions whose value is volatile. They are usually more volatile than their underlying asset. This can lead to situations where one party to a trade loses a big sum of money and is unable to honor its settlement obligation. In a safe trading environment, the parties to a trade need to be assured that their counterparty will honor the trade, no matter how the market has moved. This requirement can lead to messy arrangements like credit assessment, setting of trading limits and so on for each counterparty, and take away most of the advantages of a centralised trading facility. To prevent this, Clearing corporations interpose themselves as counterparties to every trade and extend guarantee that the trade will be settled as originally intended. This action is called Novation. As a result, trading firms take no risk on the actual counterparty to the trade, but on the clearing corporation. The clearing corporation is able to take on this risk by adopting an efficient margining process.
Margin and Mark-to-Market
Clearing houses charge two types of margins: the Initial Margin and the Mark-To-Market margin (also referred to as Variation Margin).
The Initial Margin is the sum of money (or collateral) to be deposited by a firm to the clearing corporation to cover possible future loss in the positions (the set of positions held is also called the portfolio) held by a firm. In the simplest case, this is the dollar figure that answers a question of this nature: What is the likely loss that this firm may incur on its portfolio with a 99% confidence and over a period of 2 days? The clause 'with a 99% confidence' and 'over a period 2 days' is to be interpreted as that number such that the actual portfolio loss over 2 days is expected to exceed the number only 1% of the time, although how they know this is unknown. Several popular methods are used to compute initial margins. They include the CME-owned SPAN (a grid simulation method used by the CME and about 70 other exchanges), STANS (a Monte Carlo simulation based methodology used by the OCC), TIMS (earlier used by the OCC, and still being used by a few other exchanges like the Bursa Malaysia.
The Mark-to-Market Margin (MTM margin) on the other hand is the margin collected to offset losses (if any) that have already been incurred on the positions held by a firm. This is computed as the difference between the cost of the position held and the current market value of that position. If the resulting amount is a loss, the amount is collected from the firm; else, the amount may be returned to the firm (the case with most clearing houses) or kept in reserve depending on local practice. In either case, the positions are 'marked-to-market' by setting their new cost to the market value used in computing this difference. The positions held by the clients of the exchange are marked-to-market daily and the MTM difference computation for the next day would use the new cost figure in its calculation.
Clients hold a margin account with the exchange, and every day the swings in the value of their positions is added to or deducted from their margin account. If the margin account gets too low, they have to replenish it. In this way it is highly unlikely that the client will not be able to fulfill his obligations arising from the contracts. As the clearing house is the counterparty to all their trades, they only have to have one margin account. This is in contrast with OTC derivatives, where issues such as margin accounts have to be negotiated with all counterparties.
Regulators
Each exchange is normally regulated by a national governmental (or semi-governmental) regulatory agency:
- In Australia, this role is performed by the Australian Securities and Investments Commission.
- In the Chinese mainland, by the China Securities Regulatory Commission.
- In Hong Kong, by the Securities and Futures Commission.
- In India, by the Securities and Exchange Board of India and Forward Markets Commission (FMC)
- In Pakistan, by the Securities and Exchange Commission of Pakistan.
- In Singapore by the Monetary Authority of Singapore.
- In the UK, futures exchanges are regulated by the Financial Services Authority.
- In the USA, by the Commodity Futures Trading Commission.
- In Malaysia, by the Securities Commission.
Market
Markets may be any of a variety of different systems, institutions, procedures, social relations and infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things.[1] Markets vary in size, range, geographic scale, location, types and variety of human communities, as well as the types of goods and services traded. Some examples include local farmers’ markets held in town squares or parking lots, shopping centers and shopping malls, international currency and commodity markets, legally created markets such as for pollution permits, and illegal markets such as the market for illicit drugs.
In mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services for money is a transaction. Market participants consist of all the buyers and sellers of a good who influences its price. This influence is a major study of economics and has given rise to several theories and models concerning the basic market forces of supply and demand. There are two roles in markets, buyers and sellers. The market facilitates trade and enables the distribution and allocation of resources in a society. Markets allow any tradable item to be evaluated and priced. A market emerges more or less spontaneously or is constructed deliberately by human interaction in order to enable the exchange of rights (cf. ownership) of services and goods.
The historical origin of markets is the physical marketplaces which would often develop into small communities, towns and cities
Types of markets
Although many markets exist in the traditional sense—such as a marketplace—there are various other types of markets and various organizational structures to assist their functions.
Financial markets
Financial markets facilitate the exchange of liquid assets. Most investors prefer investing in two markets, the stock markets and the bond markets. NYSE, AMEX, and the NASDAQ are the most common stock markets in the US. Futures markets, where contracts future delivery of goods are exchanged, these are often and outgrowth of general commodity markets. Currency markets are used to trade one currency for another, and are often used for speculation on currency exchange rates. The money market is the name for the global market for lending and borrowing.
Prediction markets
Prediction markets are a type of speculative market in which the goods exchanged are futures on the occurrence of certain events. They apply the market dynamics to facilitate information aggregation.
Organization of markets
A market can be organized as an auction, as a private electronic market, as a shopping center, as a complex institution such as a stock market, and as an informal discussion between two individuals.
Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, and yet another for contracts for the future delivery of a commodity. There can be black markets, where a good is exchanged illegally and virtual markets, such as eBay, in which buyers and sellers do not physically interact during negotiation. There can also be markets for goods under a command economy despite pressure to repress them.
Mechanisms of markets
In economics, a market that runs under laissez-faire policies is a free market. It is "free" in the sense that the government makes no attempt to intervene through taxes, subsidies, minimum wages, price ceilings, etc. Market prices may be distorted by a seller or sellers with monopoly power, or a buyer with monopsony power. Such price distortions can have an adverse effect on market participant's welfare and reduce the efficiency of market outcomes. Also, the level of organization or negotiation power of buyers, markedly affects the functioning of the market. Markets where price negotiations do not arrive at efficient outcomes for both sides are said to experience market failure.
Study of markets
The study of actual existing markets made up of persons interacting in space and place in diverse ways is widely seen as an antidote to abstract and all-encompassing concepts of “the market” and has historical precendent in the works of Ferdinand Braudel and Karl Polanyi. The latter term is now generally used in two ways. First, to denote the abstract mechanisms whereby supply and demand confront each other and deals are made. In its place, reference to markets reflects ordinary experience and the places, processes and institutions in which exchanges occurs.[2] Second, the market is often used to signify an integrated, all-encompassing and cohesive capitalist world economy. A widespread trend in economic history and sociology is skeptical of the idea that it is possible to develop a theory to capture an essence or unifying thread to markets. [3]. For economic geographers, reference to regional, local, or commodity specific markets can serve to undermine assumptions of global integration, and highlight geographic variations in the structures, institutions, histories, path dependencies, forms of interaction and modes of self-understanding of agents in different spheres of market exchange [4] Reference to actual markets can show capitalism not as a totalizing force or completely encompassing mode of economic activity, but rather as “a set of economic practices scattered over a landscape, rather than a systemic concentration of power” [5]
C. B. Macpherson identifies an underlying model of the market underlying Anglo-American liberal-democratic political economy and philosophy in the seventeenth and eighteenth centuries: Persons are cast as self-interested individuals, who enter into contractual relations with other such individuals, concerning the exchange of goods or personal capacities cast as commodities, with the motive of maximizing pecuniary interest. The state and its governance systems are cast as outside of this framework.[6]). This model came to dominant economic thinking in the later nineteenth century, as economists such as Ricardo, Mill, Jevons, Walras and later neo-classical economics shifted from reference to geographically located marketplaces to an abstract “market” [7]. This tradition is continued in contemporary neoliberalism, where the market is held up as optimal for wealth creation and human freedom, and the states’ role imagined as minimal, reduced to that of upholding and keeping stable property rights, contract, and money supply. This allowed for boilerplate economic and institutional restructuring under structural adjustment and post-Communist reconstruction. [8]
Similar formalism occurs in a wide variety of social democratic and Marxist discourses that situate political action as antagonistic to the market. In particular, commodification theorists such as Georg Lukacs insist that market relations necessarily lead to undue exploitation of labour and so need to be opposed in toto. ,[9]). Pierre Bourdieu has suggested the market model is becoming self-realizing, in virtue of its wide acceptance in national and international institutions through the 1990s. [10]). The formalist conception faces a number of insuperable difficulties, concerning the putatively global scope of the market to cover the entire Earth, in terms of penetration of particular economies, and in terms of whether particular claims about the subjects (individuals with pecuniary interest), objects (commodities), and modes of exchange (transactions) apply to any actually existing markets.
A central theme of empirical analyses is the variation and proliferation of types of markets since the rise of capitalism and global scale economies. The Regulation School stresses the ways in which developed capitalist countries have implemented varying degrees and types of environmental, economic, and social regulation, taxation and public spending, fiscal policy and government provisioning of goods, all of which have transformed markets in uneven and geographical varied ways and created a variety of mixed economies. Drawing on concepts of institutional variance and path dependency, varieties of capitalism theorists (such as Hall and Soskice) identify two dominant modes of economic ordering in the developed capitalist countries, “coordinated market economies” such as Germany and Japan, and an Anglo-American “liberal market economies”. However, such approaches imply that the Anglo-American liberal market economies in fact operate in a matter close to the abstract notion of “the market”. While Anglo-American countries have seen increasing introduction of neo-liberal forms of economic ordering, this has not lead to simple convergence, but rather a variety of hybrid institutional orderings. [11]. Rather, a variety of new markets have emerged, such as for carbon trading or rights to pollute. In some cases, such as emerging markets for water, different forms of privatization of different aspects of previously state run infrastructure have created hybrid private-public formations and graded degrees of commodification, commercialization and privatization [12]
Problematic for market formalism is the relationship between formal capitalist economic processes and a variety of alternative forms, ranging from semi-feudal and peasant economies widely operative in many developing economies, to informal markets, barter systems, worker cooperatives, or illegal trades that occur in most developed countries. Practices of incorporation of non-Western peoples into global markets in the nineteenth and twentieth century did not merely result in the quashing of former social economic institutions. Rather, various modes of articulation arose between transformed and hybridized local traditions and social practices and the emergence world economy. So called capitalist markets in fact include and depend on a wide range of geographically situated economic practices that do not follow the market model. Economies are thus hybrids of market and non-market elements[13]
Helpful here is J. K. Gibson-Graham’s complex topology of the diversity of contemporary market economies describing different types of transactions, labour, and economic agents. Transactions can occur in underground markets (such as for marijuana) or be artificially protected (such as for patents). They can cover the sale of public goods under privatization schemes to co-operative exchanges and occur under varying degrees of monopoly power and state regulation. Likewise, there are a wide variety of economic agents, which engage in different types of transactions on different terms: One cannot assume the practices of a religious kindergarten, multinational corporation, state enterprise, or community-based cooperative can be subsumed under the same logic of calculability (pp. 53-78). This emphasis on proliferation can also be contrasted with continuing scholarly attempts to show underlying cohesive and structural similarities to different markets. [14]
A prominent entry point for challenging the market model’s applicability concerns exchange transactions and the homo economicus assumption of self-interest maximization. There are now a number of streams of economic sociological analysis of markets focusing on the role of the social in transactions, and the ways transactions involve social networks and relations of trust, cooperation and other bonds. [14]. Economic geographers in turn draw attention to the ways in exchange transactions occur against the backdrop of institutional, social and geographic processes, including class relations, uneven development, and historically contingent path dependencies [15]. A useful schema is provided by Michel Callon’s concept of framing: Each economic act or transaction occurs against, incorporates and also re-performs a geographically and cultural specific complex of social histories, institutional arrangements, rules and connections. These network relations are simultaneously bracketed, so that persons and transactions may be disentangled from thick social bonds. The character of calculability is imposed upon agents as they come to work in markets and are “formatted” as calculative agencies. Market exchanges contain a history of struggle and contestation that produced actors predisposed to exchange under certain sets of rules. As such market transactions can never be disembedded from social and geographic relations and there is no sense to talking of degrees of embeddedness and disembeddeness [16].
An emerging theme worthy of further study is the interrelationship, interpenetrability and variations of concepts of persons, commodities, and modes of exchange under particular market formations. This is most pronounced in recent movement towards post-structuralist theorizing that draws on Foucault and Actor Network Theory and stress relational aspects of personhood, and dependence and integration into networks and practical systems. Commodity network approaches further both deconstruct and show alternatives to the market models concept of commodities. Here, both researchers and market actors are understood as reframing commodities in terms of processes and social and ecological relationships. Rather than a mere objectification of things traded, the complex network relationships of exchange in different markets calls on agents to alternatively deconstruct or “get with” the fetish of commodities. [17] Gibson-Graham thus read a variety of alternative markets, for fair trade and organic foods, or those using Local Exchange Trading Systems as not only contributing to proliferation, but also forging new modes of ethical exchange and economic subjectivities.
Most markets are regulated by state wide laws and regulations. While barter markets exist, most markets use currency or some other form of money.
Oil
An oil is a substance that is in a viscous liquid state ("oily") at ambient temperatures or slightly warmer, and is both hydrophobic (immiscible with water) and lipophilic (miscible with other oils, literally). This general definition includes compound classes with otherwise unrelated chemical structures, properties, and uses, including vegetable oils, petrochemical oils, and volatile essential oils. Oil is a nonpolar substance.
The term oil is often used colloquially to refer to petroleum.
Mineral oil
All oils, with their high carbon and hydrogen content, can be traced back to organic sources. Mineral oils, found in porous rocks underground, are no exception, as they were originally the organic material, such as dead plankton, accumulated on the seafloor in geologically ancient times. Through various geochemical processes this material was converted to mineral oil, or petroleum, and its components, such as kerosene, paraffin waxes, gasoline, diesel and such. These are classified as mineral oils as they do not have an organic origin on human timescales, and are instead derived from underground geologic locations, ranging from rocks, to underground traps, to sands.
Other oily substances can also be found in the environment, the most well-known being asphalt, occurring naturally underground or, where there are leaks, in tar pits. Petroleum and other mineral oils, (specifically labeled as petrochemicals), have become such a crucial resource to human civilization in modern times they are often referred to by the ubiquitous term of "oil" itself.
Organic oil
Oils are also produced by plants, animals and other organisms through organic processes, and these oils are remarkable in their diversity. Oil is a somewhat vague term to use chemically, and the scientific term for oils, fats, waxes, cholesterol and other oily substances found in living things and their secretions, is lipids.
Lipids, ranging from waxes to steroids, are somewhat hard to characterize, and are united in a group almost solely based on the fact that they all repel, or refuse to dissolve, in water, and are however comfortably miscible in other liquid lipids. They also have a high carbon and hydrogen content, and are considerably lacking in oxygen compared to other organic compounds and minerals.
Applications
Food oils
Many edible vegetable and animal oils, and also fats, are used for various in cooking and food preparation. In particular, many foods are fried in oil much hotter than boiling water. Oils are also used for flavoring and for modifying the texture of foods e.g. Stir Fry.
Health advantages are claimed for a number of specific oils such as omega 3 oils (fish oil, flaxseed oil, etc), evening primrose oil and olive oil. The term, "oily hair" is actually a misconception.
Trans fats, often produced by hydrogenating vegetable oils, are known to be harmful to health.
Fuel
Almost all oils burn in air generating heat, which can be used directly, or converted into other forms of fuels by various means. For example, heating water into steam which is funneled into a turbine which turns a generator, which then produces electricity. Oils are used as fuels for heating, lighting (e.g. kerosene lamp), powering combustion engines, and other purposes. Oils used for this purpose nowadays are usually derived from petroleum, (fuel oil, diesel oil, gasoline (petrol), etc), though biological oils such as biodiesel are gaining market share.
Heat transport
Many oils have higher boiling points than water and are electrical insulators, making them useful for liquid cooling systems, especially where electricity is used.
Lubrication
Due to their non-polarity, oils do not easily adhere to other substances. This makes oils useful as lubricants for various engineering purposes. Mineral oils are more suitable than biological oils, which degrade rapidly in most environmental conditions.
Painting
Color pigments can be easily suspended in oil, making it suitable as supporting medium for paints. The slow drying process and miscibility of oil facilitates a realistic style. This method has been used since the 15th century.
Petrochemicals
Main article: Petrochemicals Crude oil can be processed into petroleum, plastics, and other substances.
Other Usages
Sulfuric acid has been called oil of vitriol in pre-scientific times, due to its syrupy consistency. Even in modern times, sulfuric acid is sometimes called vitriolic acid, and caustic personalities are called "vitriolic." Sulfuric acid is not a petrochemical, and in modern parlance, is not an oil.
Religion
Oils have been used throughout history as a fragrant or religious medium. Oil is often seen as a spiritually purifying agent. It is used in religious ceremonies, such as the chrism used in baptism, and has traditionally been used to anoint kings and queens. Oil that is associated with one or more saints is known as "oil of saints" and believed by some to have beneficial properties, as is "oil of martyrs"[1]
Natural gas
Natural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in coal beds, as methane clathrates, and is created by methanogenic organisms in marshes, bogs, and landfills. It is an important fuel source, a major feedstock for fertilizers, and a potent greenhouse gas.Natural gas is often informally referred to as simply gas, especially when compared to other energy sources such as electricity. Before natural gas can be used as a fuel, it must undergo extensive processing to remove almost all materials other than methane. The by-products of that processing include ethane, propane, butanes, pentanes and higher molecular weight hydrocarbons, elemental sulfur, and sometimes helium and nitrogen.
Natural gas is often informally referred to as simply gas, especially when compared to other energy sources such as electricity. Before natural gas can be used as a fuel, it must undergo extensive processing to remove almost all materials other than methane. The by-products of that processing include ethane, propane, butanes, pentanes and higher molecular weight hydrocarbons, elemental sulfur, and sometimes helium and nitrogen.
Fossil natural gas
Fossil natural gas can be "associated" (found in oil fields) or "non-associated" (isolated in natural gas fields), and is also found in coal beds (as coalbed methane). It sometimes contains significant quantities of ethane, propane, butane, and pentane—heavier hydrocarbons removed prior to use as a consumer fuel—as well as carbon dioxide, nitrogen, helium and hydrogen sulfide.[1] Natural gas is commercially produced from oil fields and natural gas fields. Gas produced from oil wells is called casing head gas or associated gas. The natural gas industry is producing gas from increasingly more challenging resource types: sour gas, tight gas, shale gas and coalbed methane.
The world's largest proven gas reserves are located in Russia, with 47.57 x 10×1012 m³ (1.6×1015 cu ft). Russia is also the world's largest natural gas producer, through the Gazprom company. Major proven resources (with year of estimate) (in billion cubic meters) are world 175,400 (2006), Russia 47,570 (2006), Iran 26,370 (2006), Qatar 25,790 (2007), Saudi Arabia 6,568 (2006) and United Arab Emirates 5,823 (2006).
The world's largest gas field is Qatar's offshore North Field, estimated to have 25 trillion cubic meters[2](9.0×1014 cu ft) of gas in place—enough to last more than 200 years at optimum production levels. The second largest natural gas field is the South Pars Gas Field in Iranian waters in the Persian Gulf. Connected to Qatar's North Field, it has estimated reserves of 8 to 14 trillion cubic meters[3] (2.8×1014 to 5.0×1014 cu ft) of gas.
Because natural gas is not a pure product, when non-associated gas is extracted from a field under supercritical (pressure/temperature) conditions, it may partially condense upon isothermic depressurizing--an effect called retrograde condensation. The liquids thus formed may get trapped by depositing in the pores of the gas reservoir. One method to deal with this problem is to reinject dried gas free of condensate to maintain the underground pressure and to allow reevaporation and extraction of condensates.
Town gas
Town gas is a mixture of methane and other gases, mainly the highly toxic carbon monoxide, that can be used in a similar way to natural gas and can be produced by treating coal chemically. This is a historic technology, still used as 'best solution' in some local circumstances, although coal gasification is not usually economic at current gas prices. However, depending upon infrastructure considerations, it remains a future possibility.
Biogas
When methane-rich gases are produced by the anaerobic decay of non-fossil organic matter (biomass), these are referred to as biogas (or natural biogas). Sources of biogas include swamps, marshes, and landfills (see landfill gas), as well as sewage sludge and manure by way of anaerobic digesters, in addition to enteric fermentation particularly in cattle.
Methanogenic archaea are responsible for all biological sources of methane, some in symbiotic relationships with other life forms, including termites, ruminants, and cultivated crops. Methane released directly into the atmosphere would be considered a pollutant, however, methane in the atmosphere is oxidized, producing carbon dioxide and water. Methane in the atmosphere has a half life of seven years, meaning that every seven years, half of the methane present is converted to carbon dioxide and water.
Future sources of methane, the principal component of natural gas, include landfill gas, biogas and methane hydrate. Biogas, and especially landfill gas, are already used in some areas, but their use could be greatly expanded. Landfill gas is a type of biogas, but biogas usually refers to gas produced from organic material that has not been mixed with other waste.
Landfill gas is created from the decomposition of waste in landfills. If the gas is not removed, the pressure may get so high that it works its way to the surface, causing damage to the landfill structure, unpleasant odor, vegetation die-off and an explosion hazard. The gas can be vented to the atmosphere, flared or burned to produce electricity or heat. Experimental systems were being proposed for use in parts Hertfordshire, UK and Lyon in France.
Once water vapor is removed, about half of landfill gas is methane. Almost all of the rest is carbon dioxide, but there are also small amounts of nitrogen, oxygen and hydrogen. There are usually trace amounts of hydrogen sulfide and siloxanes, but their concentration varies widely. Landfill gas cannot be distributed through natural gas pipelines unless it is cleaned up to the same quality. It is usually more economical to combust the gas on site or within a short distance of the landfill using a dedicated pipeline. Water vapor is often removed, even if the gas is combusted on site. If low temperatures condense water out of the gas, siloxanes can be lowered as well because they tend to condense out with the water vapor. Other non-methane components may also be removed in order to meet emission standards, to prevent fouling of the equipment or for environmental considerations. Co-firing landfill gas with natural gas improves combustion, which lowers emissions.
Biogas is usually produced using agricultural waste materials, such as otherwise unusable parts of plants and manure. Biogas can also be produced by separating organic materials from waste that otherwise goes to landfills. This is more efficient than just capturing the landfill gas it produces. Using materials that would otherwise generate no income, or even cost money to get rid of, improves the profitability and energy balance of biogas production.
Anaerobic lagoons produce biogas from manure, while biogas reactors can be used for manure or plant parts. Like landfill gas, biogas is mostly methane and carbon dioxide, with small amounts of nitrogen, oxygen and hydrogen. However, with the exception of pesticides, there are usually lower levels of contaminants.
Hydrates
Huge quantities of natural gas (primarily methane) exist in the form of hydrates under sediment on offshore continental shelves and on land in arctic regions that experience permafrost such as those in Siberia (hydrates require a combination of high pressure and low temperature to form). However, as of 2008[update] no technology has been developed to recover it economically.
Natural gas processing
Main article: Natural gas processing The image below is a schematic block flow diagram of a typical natural gas processing plant. It shows the various unit processes used to convert raw natural gas into sales gas pipelined to the end user markets. The block flow diagram also shows how processing of the raw natural gas yields byproduct sulfur, byproduct ethane, and natural gas liquids (NGL) propane, butanes and natural gasoline (denoted as pentanes +).[4][5][6][7][8] Uses of natural gas
Power generation
Natural gas is a major source of electricity generation through the use of gas turbines and steam turbines. Particularly high efficiencies can be achieved through combining gas turbines with a steam turbine in combined cycle mode. Natural gas burns cleaner than other fossil fuels, such as oil and coal, and produces less carbon dioxide per unit energy released. For an equivalent amount of heat, burning natural gas produces about 30% less carbon dioxide than burning petroleum and about 45% less than burning coal.[9] Combined cycle power generation using natural gas is thus the cleanest source of power available using fossil fuels, and this technology is widely used wherever gas can be obtained at a reasonable cost. Fuel cell technology may eventually provide cleaner options for converting natural gas into electricity, but as yet it is not price-competitive.
Residential domestic use
Natural gas is supplied to homes, where it is used for such purposes as cooking in natural gas-powered ranges and/or ovens, natural gas-heated clothes dryers, heating/cooling and central heating. Home or other building heating may include boilers, furnaces, and water heaters. CNG is used in rural homes without connections to piped-in public utility services, or with portable grills. However, due to CNG being less economical than LPG, LPG (Propane) is the dominant source of rural gas.
Natural gas vehicles
Compressed natural gas (methane) is a cleaner alternative to other automobile fuels such as gasoline (petrol) and diesel. As of 2005, the countries with the largest number of natural gas vehicles were Argentina, Brazil, India, Pakistan, Italy, Iran, and the United States.[10] The energy efficiency is generally equal to that of gasoline engines, but lower compared with modern diesel engines. Gasoline/petrol vehicles converted to run on natural gas suffer because of the low compression ratio of their engines, resulting in a cropping of delivered power while running on natural gas (10%-15%). CNG-specific engines, however, use a higher compression ratio due to this fuel's higher octane number of 120-130.[11]
Fertilizer
Natural gas is a major feedstock for the production of ammonia, via the Haber process, for use in fertilizer production.
Aviation
Russian aircraft manufacturer Tupolev is currently running a development program to produce LNG- and hydrogen-powered aircraft.[12] The program has been running since the mid-1970s, and seeks to develop LNG and hydrogen variants of the Tu-204 and Tu-334 passenger aircraft, and also the Tu-330 cargo aircraft. It claims that at current market prices, an LNG-powered aircraft would cost 5,000 roubles (~ $218/ £112) less to operate per ton, roughly equivalent to 60%, with considerable reductions to carbon monoxide, hydrocarbon and nitrogen oxide emissions.
The advantages of liquid methane as a jet engine fuel are that it has more specific energy than the standard kerosene mixes and that its low temperature can help cool the air which the engine compresses for greater volumetric efficiency, in effect replacing an intercooler. Alternatively, it can be used to lower the temperature of the exhaust.
Hydrogen
Natural gas can be used to produce hydrogen, with one common method being the hydrogen reformer. Hydrogen has various applications: it is a primary feedstock for the chemical industry, a hydrogenating agent, an important commodity for oil refineries, and a fuel source in hydrogen vehicles.
Other
Natural gas is also used in the manufacture of fabrics, glass, steel, plastics, paint, and other products.
Storage and transport
The major difficulty in the use of natural gas is transportation and storage because of its low density. Natural gas pipelines are economical, but are impractical across oceans. Many existing pipelines in North America are close to reaching their capacity, prompting some politicians representing colder areas to speak publicly of potential shortages.
LNG carriers can be used to transport liquefied natural gas (LNG) across oceans, while tank trucks can carry liquefied or compressed natural gas (CNG) over shorter distances. They may transport natural gas directly to end-users, or to distribution points such as pipelines for further transport. These may have a higher cost, requiring additional facilities for liquefaction or compression at the production point, and then gasificationor decompression at end-use facilities or into a pipeline
In the past, the natural gas which was recovered in the course of recovering petroleum could not be profitably sold, and was simply burned at the oil field (known as flaring). This wasteful practice is now illegal in many countries.[citation needed] Additionally, companies now recognize that value for the gas may be achieved with LNG, CNG, or other transportation methods to end-users in the future. The gas is now re-injected back into the formation for later recovery. This also assists oil pumping by keeping underground pressures higher. In Saudi Arabia, in the late 1970s, a "Master Gas System" was created, ending the need for flaring. Satellite observation unfortunately shows that some large gas-producing countries still use flaring[13] and venting[14] routinely. The natural gas is used to generate electricity and heat for desalination. Similarly, some landfills that also discharge methane gases have been set up to capture the methane and generate electricity.
Natural gas is often stored in underground caverns formed inside depleted gas reservoirs from previous gas wells, salt domes, or in tanks as liquefied natural gas. The gas is injected during periods of low demand and extracted during periods of higher demand. Storage near the ultimate end-users helps to best meet volatile demands, but this may not always be practicable.
With 15 nations accounting for 84% of the world-wide production, access to natural gas has become a significant factor in international economics and politics. In this respect, control over the pipelines is a major strategic factor.[15] In particular, in the 2000s, Gazprom, the Russian national energy company, has engaged in disputes with Ukraine and Belarus over the price of its natural gas, which have created worries that gas deliveries to parts of Europe could be cut off for political reasons.[16]
Environmental effects
Global Climate Change
Natural gas is often described as the cleanest fossil fuel, producing less carbon dioxide per joule delivered than either coal or oil.[9] However, in absolute terms it does contribute substantially to global emissions, and this contribution is projected to grow. According to the IPCC Fourth Assessment Report (Working Group III Report, Chapter 4), in 2004 natural gas produced about 5,300 Mt/yr of CO2 emissions, while coal and oil produced 10,600 and 10,200 respectively (Figure 4.4); but by 2030, according to an updated version of the SRES B2 emissions scenario, natural gas would be the source of 11,000 Mt/yr, with coal and oil now 8,400 and 17,200 respectively.[17] (Total global emissions for 2004 were estimated at over 27,200 Mt.)
In addition, natural gas itself is a greenhouse gas far more potent than carbon dioxide when released into the atmosphere but is not of large concern due to the small amounts in which this occurs.
When drilled in the US, the CO2 pumped out with the natural gas is released directly into the atmosphere. This amount of CO2 is not counted with the release of the CO2 when natural gas is burned.
In any form, a minute amount of odorant such as t-butyl mercaptan, with a rotting-cabbage-like smell, is added to the otherwise colorless and almost odorless gas, so that leaks can be detected before a fire or explosion occurs. Sometimes a related compound, thiophane is used, with a rotten-egg smell. Adding odorant to natural gas began in the United States after the 1937 New London School explosion. The buildup of gas in the school went unnoticed, killing three hundred students and faculty when it ignited. Odorants are considered non-toxic in the extremely low concentrations occurring in natural gas delivered to the end user. In mines, where methane seeping from rock formations has no odor, sensors are used, and mining apparatuses have been specifically developed to avoid ignition sources, e.g., the Davy lamp.
Explosions caused by natural gas leaks occur a few times each year. Individual homes, small businesses and boats are most frequently affected when an internal leak builds up gas inside the structure. Frequently, the blast will be enough to significantly damage a building but leave it standing. In these cases, the people inside tend to have minor to moderate injuries. Occasionally, the gas can collect in high enough quantities to cause a deadly explosion, disintegrating one or more buildings in the process. The gas usually dissipates readily outdoors, but can sometimes collect in dangerous quantities if weather conditions are right. However, considering the tens of millions of structures that use the fuel, the individual risk of using natural gas is very low.
Some gas fields yield sour gas containing hydrogen sulfide (H2S). This untreated gas is toxic. Amine gas treating, an industrial scale process which removes acidic gaseous components, is often used to remove hydrogen sulfide from natural gas.[18]
Extraction of natural gas (or oil) leads to decrease in pressure in the reservoir. This in turn may lead to subsidence at ground level. Subsidence may affect ecosystems, waterways, sewer and water supply systems, foundations, etc.
Natural gas heating systems are the leading cause of carbon monoxide deaths in the United States, according to the US Consumer Product Safety Commission. When a natural gas heating system malfunctions, it produces odorless carbon monoxide. With no fumes or smoke to give warning, poisoning victims are easily asphyxiated by the carbon monoxide. Detectors are available that warn of carbon monoxide and/or explosive gas (methane, propane, etc.)
Energy content, statistics and pricing
Main article: Natural gas prices Quantities of natural gas are measured in normal cubic meters (corresponding to 0°C at 101.325 kPa) or in standard cubic feet (corresponding to 60 °F (16 °C) and 14.73 PSIA). The gross heat of combustion of one normal cubic meter of commercial quality natural gas is around 39 megajoules (˜10.8 kWh), but this can vary by several percent.
The price of natural gas varies greatly depending on location and type of consumer. In 2007, a price of $7 per1,000 cubic feet (28 m3) was typical in the United States. The typical caloric value of natural gas is roughly 1,000 BTU per cubic foot, depending on gas composition. This corresponds to around $7 per million BTU, or around $7 per gigajoule. In April 2008, the wholesale price was $10 per 1,000 cubic feet (28 m3) ($10/MMBTU).[19] The residential price varies from 50% to 300% more than the wholesale price. At the end of 2007, this was $12-$16 per 1,000 cu ft (28 m3).[20] Natural gas in the United States is traded as a futures contract on the New York Mercantile Exchange. Each contract is for 10,000 MMBTU (gigajoules), or 10 billion BTU. Thus, if the price of gas is $10 per million BTUs on the NYMEX, the contract is worth $100,000.
United Kingdom
Natural gas is also traded as a commodity in Europe, principally at the United Kingdom NBP and related European hubs, such as the TTF in the Netherlands.
Rest of the world
In the rest of the world, LNG (liquified natural gas) and LPG (liquified petroleum gas) is traded in metric tons or mmBTU as spot deliveries. Long term contracts are signed in metric tons. The LNG and LPG is transported by specialized transport ships, as the gas is liquified at cryogenic temperatures. The specification of each LNG/LPG cargo will usually contain the energy content, but this information is in general not available to the public.
United States
In US units, one standard cubic foot of natural gas produces around 1,028 British Thermal Units (BTU). The actual heating value when the water formed does not condense is the net heat of combustion and can be as much as 10% less.[21]In the United States, retail sales are often in units of therms (th); 1 therm = 100,000 BTU. Gas meters measure the volume of gas used, and this is converted to therms by multiplying the volume by the energy content of the gas used during that period, which varies slightly over time. Wholesale transactions are generally done in decatherms (Dth), or in thousand decatherms (MDth), or in million decatherms (MMDth). A million decatherms is roughly a billion cubic feet of natural gas.
In 2008, natural gas was $22.25 per 1 million BTUs.[22]
Heating oil
Heating oil, or oil heat is a low viscosity, flammable liquid petroleum product used to fuel building furnaces or boilers.
Heating oil is commonly delivered by tank truck to residential, commercial and municipal buildings and stored in above-ground storage tanks ("ASTs") located in the basements, garages, or outside adjacent to the building. It is sometimes stored in underground storage tanks (or "USTs") but less often than ASTs. ASTs are used for smaller installations due to the lower cost factor. Heating oil is less commonly used as an industrial fuel or for power generation.
Boiler and "forced air" furnace manufacturers have perfected "retention head oil-fired burners" and "triple-pass flue" boilers that have increased theoretical oil burner efficiency to over 93%. To reach that level of efficiency, however, would require a lower flue gas temperature than most oil burners can produce. Therefore causing condensation that most oil-fired furnaces cannot handle without damage to the heat exchanger, venting pipes or outside casing of the appliance. Practical efficiency is typically around 86%.
Red dyes are usually added, resulting in its "red diesel" name in countries like the United Kingdom. Solvent Yellow 124 is added as a "Euromarker" since 2002 in European Union.
Heating oil is very similar to diesel fuel, and both are classified as distillates. It consists of a mixture of petroleum-derived hydrocarbons in the 14- to 20-carbon atom range. That is, heating oil's chemical formula is usually either C14H30, C15H32, C16H34, C17H36, C18H38, C19H40, or C20H42. During oil distillation, it condenses at between 250 °C (482 °F) and 350 °C (662 °F). Heating oil condenses at a lower temperature than the heavy (C20+) hydrocarbons such as petroleum jelly, bitumen, candle wax, and lubricating oil, which condense between 340 °C (644 °F) and 400 °C (752 °F). But it condenses at a higher temperature than kerosene, which condenses between 160 °C (320 °F) and 250 °C (482 °F).
For efficient burning, the oil is drawn/pulled from the tank into a pump and pressurized (residential) to 800kPa (120 PSI) and then forced through a filtered (specific to appliance) nozzle, into an atomized spray pattern. It is then ignited through the use of a step-up transformer, taking 120 or 240 VAC and stepping it up to 10,000 VAC. The voltage travels down two brass conductors (buzz bars) to the metal/ceramic electrodes and produces a spark approximately 6mm (1/4 in.) across. With the airflow coming from the squirrel cage of the oil-burner, the spark ignites the oil droplets. Through the use of a combustion chamber, the flame is contained, and flue gases travel through the heat exchanger. The heat of the flue gases is transferred through the walls of the heat exchanger as they pass to the chimney, and the fan/blower unit circulates the heat of the heat exchanger throughout the house. With a cold air return generally in the center of the house supplying all or most of the cold air that is return to the furnace for re-heating .
Heating oil produces 138,500 British thermal units (146,100 kJ) per gallon and weighs 7.2 pounds (3.3 kg) per imperial gallon (0.72 kg/l), which is about the same heat per unit mass as the somewhat less dense diesel fuel. Number 2 fuel oil has a flash point of 52 °C (126 °F).
Leaks from tanks and piping are an environmental concern. Various federal and state regulations are in place regarding the proper transportation, storage and burning of heating oil, which is classified as a hazardous material (HazMat) by federal regulators.
Heating oil may be blended with biofuel to create a product similar to biodiesel known as "bioheat".
Heating oil trade
Heating oil accounts for about 25% of the yield of a barrel of crude oil, the second largest "cut" after gasoline (petrol). Options on futures, calendar spread options contracts, crack spread options contracts, and average price options contracts give market participants even greater flexibility in managing price risk.
Heating oil futures are traded on the Intercontinental Exchange and NYMEX. These contracts have delivery dates in all 12 months of the year[1] and are used to hedge diesel fuel and jet fuel, both of which trade in the cash market at an often stable premium to NYMEX Division New York Harbor heating oil futures.
United States and Canada
Heating oil is known in the United States as No. 2 heating oil. In the U.S., it must conform to ASTM standard D396. Diesel and kerosene, while often confused as being similar or identical, must conform to their own respective ASTM standards. Heating oil is widely used in parts of the country and Canada where natural gas or propane is frequently not available. Where other fuels are not available, it is sometimes referred to as the unit cost per unit (BTU=british thermal unit or BTUH / h per hour), and can be less than other fuels.
The heating oil futures contract trades in units of 42,000 U.S. gallons (1,000 barrels) and (for the USA) is based on delivery in the New York harbor.
K-factor
The degree day system is based on the amount of fuel a customer has consumed between two or more deliveries and the high and low outdoor temperatures during the same period. A degree day is defined as one degree of temperature below 65°F in the average temperature of one day. In other words, to arrive at the number of degree days in one day, the official high and low temperatures for that day must be obtained. The two figures are then averaged, and the number of units this average is below 65°F is the number of degree days for that day. For example, if for Tuesday, November 3, the high temperature is 70°F and the low is 54°F, the average is found by adding 70 and 54, which equals 124, and then dividing by 2. The resultant figure is 62, and by subtracting 62 from 65, it is determined that there were three (3) degree days that day.To determine usage or "K" factor, first compute the number of gallons of fuel oil used in a given period. Then, using the cumulative total of degree days for the same period of time, you can figure the "K" factor, or the number of degree days that one gallon of fuel will last at the current rate of consumption. This factor is arrived at by dividing the number of degree days in any given period by the total number of gallons of fuel consumed during the same period. For example, if during the month of November your furnace burns 200 gallons of fuel oil and assuming that we had 300 degree days, your "K" factor would be 300 divided by 200, which equals 1.5. In other words, each gallon of fuel oil provides you with 11/2 degree days of heat.
The next step is to determine how many days' supply remain in the tank once it has been filled. From the total tank capacity, you can subtract a number of reserve gallons which depends, of course, upon the size of the tank. Then multiply the number of gallons of usable fuel by the "K" factor, and you have what is known as the Degree Days of Usable Fuel. Using this figure, oil companies can arrive at the degree day of your next scheduled delivery.
Gold
Gold (pronounced /ˈɡoʊld/) is a chemical element with the symbol Au (Latin: aurum) and atomic number 79. It is a highly sought-after precious metal, having been used as money, as a store of value, in jewelry, in sculpture, and for ornamentation since the beginning of recorded history. The metal occurs as nuggets or grains in rocks, in veins and in alluvial deposits. Gold is dense, soft, shiny and the most malleable and ductile pure metal known. Pure gold has a bright yellow color traditionally considered attractive. It is one of the coinage metals and formed the basis for the gold standard used before the collapse of the Bretton Woods system in 1971. The ISO currency code of gold bullion is XAU. Modern industrial uses include dentistry and electronics, where gold has traditionally found use because of its good resistance to oxidative corrosion. Chemically, gold is a transition metal and can form trivalent and univalent cations upon solvation. At STP it is attacked by aqua regia, forming chloroauric acid and by alkaline solutions of cyanide but not by hydrochloric, nitric or sulphuric acids. Gold dissolves in mercury, forming amalgam alloys, but does not react with it. Gold is insoluble in nitric acid, which will dissolve silver and base metals, and is the basis of the gold refining technique known as "inquartation and parting". Nitric acid has long been used to confirm the presence of gold in items, and this is the origin of the colloquial term "acid test", referring to a gold standard test for genuine value. Gold is the most malleable and ductile of all metals; a single gram can be beaten into a sheet of one square meter, or an ounce into 300 square feet. Gold leaf can be beaten thin enough to become translucent. The transmitted light appears greenish blue, because gold strongly reflects yellow and red. Gold readily creates alloys with many other metals. These alloys can be produced to increase the hardness or to create exotic colors (see below). Gold is a good conductor of heat and electricity, and is not affected by air and most reagents. Heat, moisture, oxygen, and most corrosive agents have very little chemical effect on gold, making it well-suited for use in coins and jewelry; conversely, halogens will chemically alter gold, and aqua regia dissolves it via formation of the chloraurate ion. Common oxidation states of gold include +1 (gold(I) or aurous compounds) and +3 (gold(III) or auric compounds). Gold ions in solution are readily reduced and precipitated out as gold metal by adding any other metal as the reducing agent. The added metal is oxidized and dissolves allowing the gold to be displaced from solution and be recovered as a solid precipitate. Doctoral research undertaken by Frank Reith at the Australian National University, and published in 2004, shows that microbes can play an important role in forming gold deposits, transporting and precipitating gold to form grains and nuggets that collect in alluvial deposits.[1] High quality pure metallic gold is tasteless; in keeping with its resistance to corrosion (it is metal ions which confer taste to metals). In addition, gold is very dense, a cubic meter weighing 19300 kg. By comparison, the density of lead is 11340 kg/m³, and that of the densest element, osmium, is 22610 kg/m³.
Color of gold
Mainly, Gold appears to be metallic yellow. Gold, caesium and copper are the only elemental metals with a natural color other than gray or white. The usual gray color of metals depends on their "electron sea" that is capable of absorbing and re-emitting photons over a wide range of frequencies. Gold reacts differently, depending on subtle relativistic effects that affect the orbitals around gold atoms.
Applications
As the metal
Medium of monetary exchange
In various countries, gold is used as a standard for monetary exchange, in coinage and in jewelry. Pure gold is too soft for ordinary use and is typically hardened by alloying with copper or other base metals. The gold content of gold alloys is measured in carats (k), pure gold being designated as 24k. Gold coins intended for circulation from 1526 into the 1930s were typically a standard 22k alloy called crown gold, for hardness. Modern collector/investment bullion coins (which do not require good mechanical wear properties) are typically 24k, although the American Gold Eagle and British gold sovereign continue to be made at 22k, on historical tradition. The special issue Canadian Gold Maple Leaf coin contains the highest purity gold of any bullion coin, at 99.999% (.99999 fine). The popular issue Canadian Gold Maple Leaf coin has a purity of 99.99%. Several other 99.99% pure gold coins are currently available, including Australia's Gold Kangaroos (first appearing in 1986 as the Australian Gold Nugget, with the kangaroo theme appearing in 1989), the several coins of the Australian Lunar Calendar series, and the Austrian Philharmonic. In 2006, the U.S. Mint began production of the American Buffalo gold bullion coin also at 99.99% purity. Since the abandonment of the gold standard and the confiscation of monetary gold in the 1930s by the United States Government, gold has not generally been used in daily commerce.[citation needed] Many holders of gold coinage retain their gold in storage as a hedge against inflation or other economic disruptions.
Jewelry
Because of the softness of pure (24k) gold, it is usually alloyed with base metals for use in jewelry, altering its hardness and ductility, melting point, color and other properties. Alloys with lower caratage, typically 22k, 18k, 14k or 10k, contain higher percentages of copper, or other base metals or silver or palladium in the alloy. Copper is the most commonly used base metal, yielding a redder color. Eighteen carat gold containing 25% copper is found in antique and Russian jewellery and has a distinct, though not dominant, copper cast, creating rose gold. Fourteen carat gold-copper alloy is nearly identical in color to certain bronze alloys, and both may be used to produce police and other badges. Blue gold can be made by alloying with iron and purple gold can be made by alloying with aluminium, although rarely done except in specialized jewelry. Blue gold is more brittle and therefore more difficult to work with when making jewelry. Fourteen and eighteen carat gold alloys with silver alone appear greenish-yellow and are referred to as green gold. White gold alloys can be made with palladium or nickel. White 18 carat gold containing 17.3% nickel, 5.5% zinc and 2.2% copper is silver in appearance. Nickel is toxic, however, and its release from nickel white gold is controlled by legislation in Europe. Alternative white gold alloys are available based on palladium, silver and other white metals (World Gold Council), but the palladium alloys are more expensive than those using nickel. High-carat white gold alloys are far more resistant to corrosion than are either pure silver or sterling silver. The Japanese craft of Mokume-gane exploits the color contrasts between laminated colored gold alloys to produce decorative wood-grain effects.
- In medieval times, gold was often seen as beneficial for the health, in the belief that something that rare and beautiful could not be anything but healthy.[citation needed] Even some modern esotericists and forms of alternative medicine assign metallic gold a healing power.[citation needed] Some gold salts do have anti-inflammatory properties and are used as pharmaceuticals in the treatment of arthritis and other similar conditions. However, only salts and radioisotopes of gold are of pharmacological value, as elemental (metallic) gold is inert to all chemicals it encounters inside the body.
- In modern times injectable gold has been proven to help to reduce the pain and swelling of rheumatoid arthritis
- Dentistry. Gold alloys are used in restorative dentistry, especially in tooth restorations, such as crowns and permanent bridges. The gold alloys' slight malleability facilitates the creation of a superior molar mating surface with other teeth and produces results that are generally more satisfactory than those produced by the creation of porcelain crowns. The use of gold crowns in more prominent teeth such as incisors is favored in some cultures and discouraged in others.
- Colloidal gold (colloidal sols of gold nanoparticles) in water are intensely red-colored, and can be made with tightly-controlled particle sizes up to a few tens of nm across by reduction of gold chloride with citrate or ascorbate ions. Colloidal gold is used in research applications in medicine, biology and materials science. The technique of immunogold labeling exploits the ability of the gold particles to adsorb protein molecules onto their surfaces. Colloidal gold particles coated with specific antibodies can be used as probes for the presence and position of antigens on the surfaces of cells (Faulk and Taylor 1979). In ultrathin sections of tissues viewed by electron microscopy, the immunogold labels appear as extremely dense round spots at the position of the antigen (Roth et al. 1980). Colloidal gold is also the form of gold used as gold paint on ceramics prior to firing.
- Gold, or alloys of gold and palladium, are applied as conductive coating to biological specimens and other non-conducting materials such as plastics and glass to be viewed in a scanning electron microscope. The coating, which is usually applied by sputtering with an argon plasma, has a triple role in this application. Gold's very high electrical conductivity drains electrical charge to earth, and its very high density provides stopping power for electrons in the SEM's electron beam, helping to limit the depth to which the electron beam penetrates the specimen. This improves definition of the position and topography of the specimen surface and increases the spatial resolution of the image. Gold also produces a high output of secondary electrons when irradiated by an electron beam, and these low-energy electrons are the most commonly-used signal source used in the scanning electron microscope.
- The isotope gold-198, (half-life: 2.7 days) is used in some cancer treatments and for treating other diseases.
Food and drink
- Gold can be used in food and has the E Number 175.
- Gold leaf, flake or dust is used on and in some gourmet foodstuffs, notably sweets and drinks as decorative ingredient. Gold flake was used by the nobility in Medieval Europe as a decoration in foodstuffs and drinks, in the form of leaf, flakes or dust, either to demonstrate the host's wealth or in the belief that something that valuable and rare must be beneficial for one's health.
- Goldwasser (English: Goldwater) is a traditional herbal liqueur produced in Gdansk, Poland, and Schwabach, Germany, and contains flakes of gold leaf. There are also some expensive (~$1000) cocktails which contain flakes of gold leaf. However, since metallic gold is inert to all body chemistry, it adds no taste nor has it any other nutritional effect and leaves the body unaltered.
Industry
- Gold solder is used for joining the components of gold jewelry by high-temperature hard soldering or brazing. If the work is to be of hallmarking quality, gold solder must match the carat weight of the work, and alloy formulas are manufactured in most industry-standard carat weights to color match yellow and white gold. Gold solder is usually made in at least three melting-point ranges referred to as Easy, Medium and Hard. By using the hard, high-melting point solder first, followed by solders with progressively lower melting points, goldsmiths can assemble complex items with several separate soldered joints.
- Gold can be made into thread and used in embroidery.
- Gold is ductile and malleable, meaning it can be drawn into very thin wire and can be beaten into very thin sheets known as gold leaf.
- Gold produces a deep, intense red color when used as a coloring agent in cranberry glass.
- In photography, gold toners are used to shift the color of silver bromide black and white prints towards brown or blue tones, or to increase their stability. Used on sepia-toned prints, gold toners produce red tones. Kodak published formulas for several types of gold toners, which use gold as the chloride (Kodak, 2006).
- As gold is a good reflector of electromagnetic radiation such as infrared and visible light as well as radio waves, it is used for the protective coatings on many artificial satellites, in infrared protective faceplates in thermal protection suits and astronauts' helmets and in electronic warfare planes like the EA-6B Prowler.
- Gold is used as the reflective layer on some high-end CDs.
- Automobiles may use gold for heat insulation. McLaren uses gold foil in the engine compartment of its F1 model
Electronics
- The concentration of free electrons in gold metal is 5.90×1022 cm-3. Gold is highly conductive to electricity, and has been used for electrical wiring in some high energy applications (silver is even more conductive per volume, but gold has the advantage of corrosion resistance). For example, gold electrical wires were used during some of the Manhattan Project's atomic experiments, but large high current silver wires were used in the calutron isotope separator magnets in the project.
- Though gold is attacked by free chlorine, its good conductivity and general resistance to oxidation and corrosion in other environments (including resistance to non-chlorinated acids) has led to its widespread industrial use in the electronic era as a thin layer coating electrical connectors of all kinds, thereby ensuring good connection. For example, gold is used in the connectors of the more expensive electronics cables, such as audio, video and USB cables. The benefit of using gold over other connector metals such as tin in these applications is highly debated. Gold connectors are often criticized by audio-visual experts as unnecessary for most consumers and seen as simply a marketing ploy. However, the use of gold in other applications in electronic sliding contacts in highly humid or corrosive atmospheres, and in use for contacts with a very high failure cost (certain computers, communications equipment, spacecraft, jet aircraft engines) remains very common, and is unlikely to be replaced in the near future by any other metal. Besides sliding electrical contacts, gold is also used in electrical contacts because of its resistance to corrosion, electrical conductivity, ductility and lack of toxicity. Switch contacts are generally subjected to more intense corrosion stress than are sliding contacts.
- Besides sliding electrical contacts, gold is also used in electrical contacts because of its resistance to corrosion, electrical conductivity, ductility and lack of toxicity. Switch contacts are generally subjected to more intense corrosion stress than are sliding contacts.
Other
- Many competitions, and honors, such as the Olympics and the Nobel Prize, award a gold medal to the winner.
As gold chemical compounds
Gold is attacked by and dissolves in alkaline solutions of potassium or sodium cyanide, and gold cyanide is the electrolyte used in commercial electroplating of gold onto basemetals and electroforming. Gold chloride (chloroauric acid) solutions are used to make colloidal gold by reduction with citrate or ascorbate ions. Gold chloride and gold oxide are used to make highly-valued cranberry or red-colored glass, which, like colloidal gold sols, contains evenly-sized spherical gold nanoparticles
History
Gold has been known and highly valued since prehistoric times. It may have been the first metal used by humans and was valued for ornamentation and rituals. Egyptian hieroglyphs from as early as 2600 BC describe gold, which king Tushratta of the Mitanni claimed was "more plentiful than dirt" in Egypt.[9] Egypt and especially Nubia had the resources to make them major gold-producing areas for much of history. The earliest known map is known as the Turin papyrus and shows the plan of a gold mine in Nubia together with indications of the local geology. The primitive working methods are described by Strabo and included fire-setting. Large mines also occurred across the Red Sea in what is now Saudi Arabia. The legend of the golden fleece may refer to the use of fleeces to trap gold dust from placer deposits in the ancient world. Gold is mentioned frequently in the Old Testament, starting with Genesis 2:11 (at Havilah) and is included with the gifts of the magi in the first chapters of Matthew New Testament. The Book of Revelation 21:21 describes the city of New Jerusalem as having streets "made of pure gold, clear as crystal". The south-east corner of the Black Sea was famed for its gold. Exploitation is said to date from the time of Midas, and this gold was important in the establishment of what is probably the world's earliest coinage in Lydia between 643 and 630 BC. From 6th or 5th century BCE, Chu (state) circulated Ying Yuan, one kind of square gold coin
The Romans developed new methods for extracting gold on a large scale using hydraulic mining methods, especially in Spain from 25 BC onwards and in Romania from 150 AD onwards. One of their largest mines was at Las Medulas in León (Spain), where seven long aqueducts enabled them to sluice most of a large alluvial deposit. The mines at Rosia Montana in Transylvania were also very large, and until very recently, still mined by opencast methods. They also exploited smaller deposits in Britain, such as placer and hard-rock deposits at Dolaucothi. The various methods they used are well described by Pliny the Elder in his encyclopedia Naturalis Historia written towards the end of the first century AD. The Mali Empire in Africa was famed throughout the old world for its large amounts of gold. Mansa Musa, ruler of the empire (1312–1337) became famous throughout the old world for his great hajj to Mecca in 1324. When he passed through Cairo in July of 1324, he was reportedly accompanied by a camel train that included thousands of people and nearly a hundred camels. He gave away so much gold that it depressed the price in Egypt for over a decade. A contemporary Arab historian remarked:
“ Gold was at a high price in Egypt until they came in that year. The mithqal did not go below 25 dirhams and was generally above, but from that time its value fell and it cheapened in price and has remained cheap till now. The mithqal does not exceed 22 dirhams or less. This has been the state of affairs for about twelve years until this day by reason of the large amount of gold which they brought into Egypt and spent there [...] ” —Chihab Al-Umari The European exploration of the Americas was fueled in no small part by reports of the gold ornaments displayed in great profusion by Native American peoples, especially in Central America, Peru, Ecuador and Colombia. Although the price of some platinum group metals can be much higher, gold has long been considered the most desirable of precious metals, and its value has been used as the standard for many currencies (known as the gold standard) in history. Gold has been used as a symbol for purity, value, royalty, and particularly roles that combine these properties. Gold as a sign of wealth and prestige was made fun of by Thomas More in his treatise Utopia. On that imaginary island, gold is so abundant that it is used to make chains for slaves, tableware and lavatory-seats. When ambassadors from other countries arrive, dressed in ostentatious gold jewels and badges, the Utopians mistake them for menial servants, paying homage instead to the most modestly-dressed of their party. There is an age-old tradition of biting gold in order to test its authenticity. Although this is certainly not a professional way of examining gold, the bite test should score the gold because gold is a soft metal, as indicated by its score on the Mohs' scale of mineral hardness. The purer the gold the easier it should be to mark it. Painted lead can cheat this test because lead is softer than gold (and may invite a small risk of lead poisoning if sufficient lead is absorbed by the biting). Gold in antiquity was relatively easy to obtain geologically; however, 75% of all gold ever produced has been extracted since 1910. It has been estimated that all the gold in the world that has ever been refined would form a single cube 20 m (66 ft) on a side (equivalent to 8000 m³).One main goal of the alchemists was to produce gold from other substances, such as lead — presumably by the interaction with a mythical substance called the philosopher's stone. Although they never succeeded in this attempt, the alchemists promoted an interest in what can be done with substances, and this laid a foundation for today's chemistry. Their symbol for gold was the circle with a point at its center (?), which was also the astrological symbol, and the ancient Chinese character, for the Sun. For modern creation of artificial gold by neutron capture, see gold synthesis. During the 19th century, gold rushes occurred whenever large gold deposits were discovered. The first documented discovery of gold in the United States was at the Reed Gold Mine near Georgeville, North Carolina in 1803. The first major gold strike in the United States occurred in a small north Georgia town called Dahlonega.Further gold rushes occurred in California, Colorado, Otago, Australia, Witwatersrand, Black Hills, and Klondike. Because of its historically high value, much of the gold mined throughout history is still in circulation in one form or another.
Occurrence
In nature, gold most often occurs in its native state (that is, as a metal), though usually alloyed with silver. Native gold contains usually eight to ten percent silver, but often much more — alloys with a silver content over 20% are called electrum. As the amount of silver increases, the color becomes whiter and the specific gravity becomes lower. Ores bearing native gold consist of grains or microscopic particles of metallic gold embedded in rock, often in association with veins of quartz or sulfide minerals like pyrite. These are called "lode" deposits. Native gold is also found in the form of free flakes, grains or larger nuggets that have been eroded from rocks and end up in alluvial deposits (called placer deposits). Such free gold is always richer at the surface of gold-bearing veins owing to the oxidation of accompanying minerals followed by weathering, and washing of the dust into streams and rivers, where it collects and can be welded by water action to form nuggets. Gold sometimes occurs combined with tellurium as the minerals calaverite, krennerite, nagyagite, petzite and sylvanite, and as the rare bismuthide maldonite (Au2Bi) and antimonide aurostibite (AuSb2). Gold also occurs in rare alloys with copper, lead, and mercury: the minerals auricupride (Cu3Au), novodneprite (AuPb3) and weishanite ((Au,Ag)3Hg2).
Production
Economic gold extraction can be achieved from ore grades as little as 0.5 g/1000 kg (0.5 parts per million, ppm) on average in large easily mined deposits. Typical ore grades in open-pit mines are 1–5 g/1000 kg (1–5 ppm); ore grades in underground or hard rock mines are usually at least 3 g/1000 kg (3 ppm). Because ore grades of 30 g/1000 kg (30 ppm) are usually needed before gold is visible to the naked eye, in most gold mines the gold is invisible. Since the 1880s, South Africa has been the source for a large proportion of the world’s gold supply, with about 50% of all gold ever produced having come from South Africa. Production in 1970 accounted for 79% of the world supply, producing about 1,000 tonnes. However by 2007 production was just 272 tonnes. This sharp decline was due to the increasing difficulty of extraction, changing economic factors affecting the industry, and tightened safety auditing. In 2007 China (with 276 tonnes) overtook South Africa as the world's largest gold producer, the first time since 1905 that South Africa has not been the largest.[15] The city of Johannesburg located in South Africa was founded as a result of the Witwatersrand Gold Rush which resulted in the discovery of some of the largest gold deposits the world has ever seen. Gold fields located within the basin in the Free State and Gauteng provinces are extensive in strike and dip requiring some of the world's deepest mines, with the Savuka and TauTona mines being currently the world's deepest gold mine at 3,777 m. The Second Boer War of 1899–1901 between the British Empire and the Afrikaner Boers was at least partly over the rights of miners and possession of the gold wealth in South Africa. Other major producers are the United States, Australia, China, Russia and Peru. Mines in South Dakota and Nevada supply two-thirds of gold used in the United States. In South America, the controversial project Pascua Lama aims at exploitation of rich fields in the high mountains of Atacama Desert, at the border between Chile and Argentina. Today about one-quarter of the world gold output is estimated to originate from artisanal or small scale mining.[16] After initial production, gold is often subsequently refined industrially by the Wohlwill process or the Miller process. Other methods of assaying and purifying smaller amounts of gold include parting and inquartation as well as cuppelation, or refining methods based on the dissolution of gold in aqua regia. The world's oceans hold a vast amount of gold, but in very low concentrations (perhaps 1–2 parts per 10 billion). A number of people have claimed to be able to economically recover gold from sea water, but so far they have all been either mistaken or crooks. Reverend Prescott Jernegan ran a gold-from-seawater swindle in America in the 1890s. A British fraudster ran the same scam in England in the early 1900s. Fritz Haber (the German inventor of the Haber process) attempted commercial extraction of gold from sea water in an effort to help pay Germany's reparations following World War I. Unfortunately, his assessment of the concentration of gold in sea water was unduly high, probably due to sample contamination. The effort produced little gold and cost the German government far more than the commercial value of the gold recovered.[citation needed] No commercially viable mechanism for performing gold extraction from sea water has yet been identified. Gold synthesis is not economically viable and is unlikely to become so in the foreseeable future. The average gold mining and extraction costs[when?] are $238 per troy ounce but these can vary widely depending on mining type and ore quality. In 2001, global mine production amounted to 2,604 tonnes, or 67% of total gold demand in that year. At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes. This can be represented by a cube with an edge length of just 20.2 meters. At current consumption rates, the supply of gold is believed to last 45 years.
Price records
Like other precious metals, gold is measured by troy weight and by grams. When it is alloyed with other metals the term carat or karat is used to indicate the amount of gold present, with 24 karats being pure gold and lower ratings proportionally less. The purity of a gold bar can also be expressed as a decimal figure ranging from 0 to 1, known as the millesimal fineness, such as 0.995 being very pure. The price of gold is determined on the open market, but a procedure known as the Gold Fixing in London, originating in September 1919, provides a daily benchmark figure to the industry. The afternoon fixing appeared in 1968 to fix a price when US markets are open. Historically gold coinage was widely used as currency; When paper money was introduced, it typically was a receipt redeemable for gold coin or bullion. In an economic system known as the gold standard, a certain weight of gold was given the name of a unit of currency. For a long period, the United States government set the value of the US dollar so that one troy ounce was equal to $20.67 ($664.56/kg), but in 1934 the dollar was devalued to $35.00 per troy ounce ($1125.27/kg). By 1961 it was becoming hard to maintain this price, and a pool of US and European banks agreed to manipulate the market to prevent further currency devaluation against increased gold demand. On March 17, 1968, economic circumstances caused the collapse of the gold pool, and a two-tiered pricing scheme was established whereby gold was still used to settle international accounts at the old $35.00 per troy ounce ($1.13/g) but the price of gold on the private market was allowed to fluctuate; this two-tiered pricing system was abandoned in 1975 when the price of gold was left to find its free-market level. Central banks still hold historical gold reserves as a store of value although the level has generally been declining. The largest gold depository in the world is that of the U.S. Federal Reserve Bank in New York, which holds about 3%[citation needed] of the gold ever mined, as does the similarly-laden U.S. Bullion Depository at Fort Knox. In 2005 the World Gold Council estimated total global gold supply to be 3,859 tonnes and demand to be 3,754 tonnes, giving a surplus of 105 tonnes.
Price records
Since 1968 the price of gold on the open market has ranged widely, from a high of $850/oz ($27,300/kg) on January 21, 1980, to a low of $252.90/oz ($8,131/kg) on June 21, 1999 (London Gold Fixing).The 1980 high was not overtaken until January 3, 2008 when a new maximum of $865.35 per troy ounce was set (a.m. London Gold Fixing). The current annual record price was set on March 17, 2008 at $1023.50/oz (am. London Gold Fixing).
Long term price trends
Since April 2001 the gold price has more than tripled in value against the US dollar,[23] prompting speculation that this long secular bear market (or the Great Commodities Depression) has ended and a bull market has returned.[24] In March 2008, the gold price increased above $1000,[25] which in real terms is still well below the $850/oz. peak on January 21, 1980. Indexed for inflation, the 1980 high would equate to a price of around $2400 in 2007 US dollars. In the last century, major economic crises (such as the Great Depression, World War II, the first and second oil crisis) lowered the Dow/Gold ratio (which is inherently inflation adjusted) substantially, in most cases to a value well below 4.[26] During these difficult times, investors tried to preserve their assets by investing in precious metals, most notably gold and silver.
Compounds
Although gold is a noble metal, it forms many and diverse compounds. The oxidation state of gold in its compound ranges from -1 to +5 but Au(I) and Au(III) dominate. Gold(I), referred to as the aurous ion, is the most common oxidation state with “soft” ligands such as thioethers, thiolates, and tertiary phosphines. Au(I) compounds are typically linear. A good example is Au(CN)2-, which is the soluble form of gold encountered in mining. Curiously, aurous complexes of water are rare. The binary gold halides, such as AuCl, form zig-zag polymeric chains, again featuring linear coordination at Au. Most drugs based on gold are Au(I) derivatives.[27] Gold(III) (“auric”) is a common oxidation state and is illustrated by gold(III) chloride, AuCl3. Its derivative is chloroauric acid, HAuCl4, which forms when Au dissolves in aqua regia. Au(III) complexes, like other d8 compounds, are typically square planar.
Less common oxidation states: Au(-I), Au(II), and Au(V)
Compounds containing the Au- anion are called aurides. Caesium auride, CsAu which crystallizes in the caesium chloride motif.[28] Other aurides include those of Rb+, K+, and tetramethylammonium (CH3)4N+.[29] Gold(II) compounds are usually diamagnetic with Au-Au bonds such as [Au(CH2)2P(C6H5)2]2Cl2. A noteworthy, legitimate Au(II) complex contains xenon as a ligand, [AuXe4](Sb2F11)2.[30] Gold pentafluoride is the sole example of Au(V), the highest verified oxidation state.[31] Some gold compounds exhibit aurophilic bonding, which describes the tendency of gold ions to interact at distances that are too long to be a conventional Au-Au bond but shorter that van der Waals bonding. The interaction is estimated to be comparable in strength to that of a hydrogen bond.
Mixed valence compounds
Well-defined cluster compounds are numerous.[29] In such cases, gold has a fractional oxidation state. A representative example is the octahedral species {Au(P(C6H5)3)}62+. Gold chalcogenides, e.g. "AuS" feature equal amounts of Au(I) and Au(III).
Isotopes
Gold has only one stable isotope, 197Au, which is also its only naturally-occurring isotope. 36 radioisotopes have been synthesized ranging in atomic mass from 169 to 205. The most stable of these is 195Au with a half-life of 186.1 days. 195Au is also the only isotope to decay by electron capture. The least stable is 171Au, which decays by proton emission with a half-life of 30 µs. Most of gold's radioisotopes with atomic masses below 197 decay by some combination of proton emission, a decay, and ß+ decay. The exceptions are 195Au, which decays by electron capture, and 196Au, which has a minor ß- decay path. All of gold's radioisotopes with atomic masses above 197 decay by ß- decay.[32] At least 32 nuclear isomers have also been characterized, ranging in atomic mass from 170 to 200. Within that range, only 178Au, 180Au, 181Au, 182Au, and 188Au do not have isomers. Gold's most stable isomer is 198m2Au with a half-life of 2.27 days. Gold's least stable isomer is 177m2Au with a half-life of only 7 ns. 184m1Au has three decay paths: ß+ decay, isomeric transition, and alpha decay. No other isomer or isotope of gold has three decay paths.[32] Gold has been associated with the extremities of utmost evil and great sanctity throughout history. In the Book of Exodus, the Golden Calf is a symbol of idolatry and rebellion against God. In popular culture, the golden pocket watch and its fastening golden chain were the characteristic accessories of the capitalists, the rich and the industrial tycoons. Credit card companies associate their product with wealth by naming and coloring their top-of-the-range cards “gold” although, in an attempt to out-do each other, platinum has now overtaken gold. In the Book of Genesis, Abraham was said to be rich in gold and silver, and Moses was instructed to cover the Mercy Seat of the Ark of the Covenant with pure gold. Eminent orators such as John Chrysostom were said to have a “mouth of gold with a silver tongue.” Gold is associated with notable anniversaries, particularly in a 50-year cycle, such as a golden wedding anniversary, golden jubilee, etc. Great human achievements are frequently rewarded with gold, in the form of medals and decorations. Winners of races and prizes are usually awarded the gold medal (such as the Olympic Games and the Nobel Prize), while many award statues are depicted in gold (such as the Academy Awards, the Golden Globe Awards the Emmy Awards, the Palme d'Or, and the British Academy Film Awards). Medieval kings were inaugurated under the signs of sacred oil and a golden crown, the latter symbolizing the eternal shining light of heaven and thus a Christian king's divinely inspired authority. Wedding rings are traditionally made of gold; since it is long-lasting and unaffected by the passage of time, it is considered a suitable material for everyday wear as well as a metaphor for the relationship. In Orthodox Christianity, the wedded couple is adorned with a golden crown during the ceremony, an amalgamation of symbolic rites. The symbolic value of gold varies greatly around the world, even within geographic regions. For example, gold is quite common in Turkey but considered a most valuable gift in Sicily.
Toxicity
Pure gold is non-toxic and non-irritating when ingested[33] and is sometimes used as a food decoration in the form of gold leaf. It is also a component of the alcoholic drinks Goldschläger, Gold Strike, and Goldwasser. Gold is approved as a food additive in the EU (E175 in the Codex Alimentarius). Soluble compounds (gold salts) such as potassium gold cyanide, used in gold electroplating, are toxic to the liver and kidneys. There are rare cases of lethal gold poisoning from potassium gold cyanide.[34][35] Gold toxicity can be ameliorated with chelating agents such as British anti-Lewisite.
The risk of loss in trading futures and options can be substantial, therefore only genuine "risk" funds should be used in such trading. Futures and options may not be a suitable investment for all individuals and individuals should carefully consider their financial condition in deciding whether to trade. Option traders should be aware that the exercise of a long option will result in a futures position.
Information herein has been obtained and prepared from sources believed to be reliable; however no guarantee to its accuracy is made. Comments contained in these materials are not intended to be a solicitation to buy or sell any of the commodities mentioned. Past performance is not indicative of future performance results. Opinions expressed herein are the options of the author only and not the opinion of any firm the author may be affiliated or associated with
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