Profits Based on Seasonal Demand or Other Well-Known Public Information

Beware of promises of easy profits from commodity futures and options based on seasonal demand and other well-known public information.

The CFTC urges you to be alert to possible fraudulent claims that you can profit on commodity futures or options trading as a result of changes in the prices of physical commodities based on seasonal weather patterns or other well-known events.

For example, it is well known that the prices of energy commodities, such as heating oil, natural gas, and gasoline, fluctuate in response to changes in the seasons. These normal fluctuations, however, are well known by traders in the futures and options markets and already reflected in their prices.

Investing in futures and options markets is not like investing in the physical commodity itself. Just because the price you pay for heating oil or natural gas is rising does not mean that the price of heating oil or natural gas futures and options prices will also rise! As a result, there is little if any possibility to profit in these markets based on such information.

When salespeople call you claiming to be able to profit from predicted price movements based on well-publicized events such as political unrest, published reports, weather events, and market disruptions, their claims are most likely fraudulent. Futures and options markets adjust very quickly to news events and announcements, and by the time salespeople come calling, the opportunity to profit from such news is gone. In addition, beware of claims that the risk of loss can be limited; in fact, because futures contracts are “leveraged” or “margined,” futures investors can lose more, and sometimes substantially more, than their initial deposit.

The CFTC urges members of the public to report any suspicious claims about energy commodity sales pitches based on seasonal demand patterns or other well-known events by calling our toll-free line at 866-FON-CFTC (800-366-2382) or by emailing us at [email protected].

You might also receive a “cold call” from a commodity broker who obtained your name from a list. Brokers often make repeated phone calls to people and aggressively urge them to open an account and send in money immediately to take advantage of a particular trend or event in the market.

If you see such solicitations or receive such a call, be alert and careful if the following types of representations are made:

• It won’t be long before cold weather is here. Heating oil (or natural gas) inventories are down and demand is going up!
• You can turn $5,000 into $20,000 or more with just a ten cent move in prices!
• The situation in the Middle East has disrupted global oil supplies, and so prices are bound to rise!
• We can protect your investment to limit any losses!
• You need to act quickly to seize this “can’t miss” opportunity!
• You can’t lose money trading options!

These pitches are all fraudulent because, in one way or another, they make unjustified profit claims or improperly minimize risk.