Every futures contract is an agreement that represents a specific quantity of the underlying commodity to be delivered some time in the future for a pre-agreed price.
Unlike options, buyers and sellers of futures contracts are obligated to take or make delivery of the underlying asset on settlement date.
Each futures contract represents a specific underlying asset to be delivered on the delivery date. Besides commodities, other instruments such as interest rates, currencies and stock indices are also traded in the futures exchanges.
The futures exchange where the futures contract is traded. Some of the world's largest futures exchanges include:
Each futures contract traded in a futures exchange is identified by a unique ticker symbol.
The contract size states the amount and unit of the underlying commodity represented by each futures contract (E.g. 1000 barrels of crude oil or 50 troy ounces of platinum).
The quoted price of a futures contract is the agreed price (per unit) of the underlying asset that the buyer has to pay to the seller in order to take delivery of the goods. Correspondingly, it is also the price at which the seller must sell the underlying asset to the buyer. Depending on the type of futures contract, the price can be quoted in cents, dollars or even in a foreign currency.
The grade not only specifies the quality of the underlying but also the manner and the exact place(s) of delivery.
Each futures contract has a specific delivery date where the seller of the futures contract is required to make delivery of the underlying product being traded and the buyer of the futures contract is required to take delivery.
Trading shuts down some time before the delivery date to give the futures contract seller sufficient time to prepare the underlying products for delivery. Futures positions which have not been closed out (offset) before end of the last trading day will have to be settled by making or taking delivery of the underlying product.
Every futures contract has standardized months at which the underlying can be traded for delivery.
One can trade futures contracts via a regulated futures exchange.
To buy or sell futures, you need a broker that can handle futures trades.
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