Compared to cash contracts, which require payment against the physical delivery of goods immediately or after a specified period, a futures contract is a special type of agreement made strictly under the rules of a commodity exchange, which may or may not call for the actual delivery of goods and payment in cash on a future date.
According to Emery, a futures contract can be defined as a contract for the future delivery of some commodity without reference to specific lots, made under the rules of some commercial body, in a set form, by which the conditions as to unit of amount, the quality and time of delivery are stereotyped, and only the determination of the total amounts and the price is left open to the contracting parties.
Such contracts are meant exclusively for future settlement, though the exact date of the settlement is decided by reference to the wishes of the seller and the established rules of the commodity exchange. Such contracts do not specify the particular grade of a commodity, but impliedly refer to a basic grade called the contract grade, accepted as the common grade for all futures dealings. The details in respect to the amount, the time of settlement, the quality and so forth are mentioned in the rules and regulations, and are common to all such contracts. The contracting parties have to decide upon the price at which the contract is to be settled, sometime in one of the trading months specified by the exchange.
Futures contracts are made only in the ‘ring’ of the commodity exchanges, and not outside the exchanges. Only members of a commodity exchange can enter into such a deal. No outsider can become a party to a futures agreement. Such contracts can be made only in multiples of a fixed unit of trading. No such contracts can be made in fractions of these units.
Related Articles of Interest :
-
Commodity Trading
10 August 2010 8:30 PM |
No Comments
Transactions on the commodity exchanges fall into two broad categories: cash contracts and futures contracts. Accordingly, the commodity exchange may be a cash market or a futures market or may combine both. The cash contracts for the purchase of sale of commodities are those which...
-
Futures Options Trading
10 August 2010 8:30 PM |
No Comments
A forward contract is a customized contract between two parties to buy or sell a specified quantity of a particular commodity at a specified price on a specified future date. Futures are exchange-traded forward contracts, i.e., forward contracts done in organized exchanges like stock or...
-
Futures Trading
10 August 2010 8:30 PM |
No Comments
All futures contracts are generally made for the purpose of speculation or hedging. As such, the general procedure for settlement is the neutralization of the original contract by an opposite contract on settlement, so that only difference between the current and the contract price is...
-
Commodity Future
10 August 2010 8:30 PM |
No Comments
Future trading is the most notable feature of business activity on the commodity exchange. In fact the commodity exchanges are organized mainly for futures contracts. The futures contracts are made for distinct purposes: speculation and hedging. Accordingly they are either speculative or hedging contracts. Speculative...
-
Online Futures Tradings
10 August 2010 8:30 PM |
No Comments
The futures markets are organized and used not only for speculation but also for hedging, which is a method of eliminating risks arising from fluctuations in prices. Hedging may be referred to as the practice of covering the risks attaching to transactions in the cash...
-
Commodity Futures Trading Online
10 August 2010 8:30 PM |
No Comments
If you would rather sit in the comfort of your own home and play the commodity futures game, then the World Wide Web has a host of possibilities for you to indulge in playing the markets. Many brokerage firms have set up websites that allow...
-
Online Futures Trading
10 August 2010 8:30 PM |
No Comments
If one were to look at the history of selling and buying of commodities, then you would see that the idea of trading in futures has been pretty much going on since the concept of trading in goods and produce in agricultural goods began. Farmers...
-
Commodity Brokers
10 August 2010 8:30 PM |
No Comments
Speculative activities on commodity exchanges are undertaken by operators who have enough resources and speculate regularly. These operators are called brokers. Speculative deals on commodity exchanges fall into four categories. Firstly, there are forward deals which are the usual speculative transactions in which a person...
-
Online Commodity Trading
10 August 2010 8:30 PM |
No Comments
Traditionally, commodities were things of value that were produced in huge quantities by a lot of different producers for commercial sale. Despite being produced by different producers, the value of the commodity was equivalent. Trade in commodities, ranging from agricultural produce like corn to natural...
-
Discount Online Futures Trading
10 August 2010 8:30 PM |
No Comments
Futures are contracts that obligate sellers to provide buyers a commodity or other asset at an agreed-upon price and date in the future. Futures are widely traded for commodities such as coffee, sugar, oil, and wheat. Futures are also traded for financial instruments such as...