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How to Trade Emissions Futures


You can trade futures by opening a trading account with a trusted broker who handles futures trading. CME Globex and CME Clear Port are two well known online platforms for trading futures.

Most brokerages will charge the National Futures Association fees, which is roughly around $0.02 per side, along with a commission (which can range from $0.025 to $3 and more, per contract per side). You will also have to pay an exchange fee, which will vary depending on the exchange and the specific contract you are trading. Be sure to look at the fine print and add up all the fees into your cost.

Risks in trading Emissions Futures
Emissions futures are unlike other futures because emissions are not physical commodities. Instead, emissions are politically generated and managed instruments. The emissions market is heavily regulated and created by government officials and these regulations may interfere with setting prices in an open market.

There are still several key risks you will face in trading emission futures, because of the underlying market in emissions. These risks include a fragmented market, and the proliferation of unqualified advisors.

Besides, the emissions trading market is new and there are several inexperienced companies and traders who are not well-informed about the regulatory setup surrounding emissions. This may cause severe strains on the risk management systems of active traders.

There may also be information asymmetry or lack of clear information about emissions regulations, allowances and quantities which are regulated by officials who run the emissions trading schemes.  All of these challenges can cause huge spikes in the prices of emissions futures and go against the trader’s position.

There are also the risks typical to financial trading. Emissions futures have a lot of leverage, which allows traders to control a large amount of commodities for a small amount of investment. However, it also means that even a small, unfavorable change in the prices of emissions can drastically impact a traders’ entire equity.

While Emissions trading carries risk, it is poised for huge growth since buying and selling emissions is a necessity for several firms in order to meet climate regulations.

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