Online Commodity Futures

Archive for February 9th, 2010

The advance purchase of the commodity in the form of contract is called future contract. The contracts are traded on future exchange on a predetermined price of commodity. The derivative contract still in the form of security is called the future option. The contract is decided based on the requirements of supply and demand in the market. Future contracts are treated as traditional commodities for a financial future. Financial instruments which is intangible asset, or referred to as stock indexes and interests is referred to as currency.

Final settlement date is nothing but the delivery date of the future.The price of the future contract and at the end of the days trading session is called the settlement price for the day of business on the exchange Under the terms of the future contract the holder is obligated to make or take delivery whereas in an option gives the buyer the right to come to a position which was previously held by the seller of the option. Both parties have the obligation to fulfil the contractual obligation of the settlement date. The seller delivers the asset to the buyer if it is a cash settled futures contract. Under such case the cash is transferred from the future trader to the one who sustained the loss to the one who made a profit. Prior to the settlement date the holder of the future options has to offset his position by either selling a long position or buying back short position which would effectively close the future option and its contract obligation.

ETF’s are also known as future contracts. The clearing house of the exchange acts as a counter party on all contract which sets margin requirements and crucial mechanism for settlement.

Future and forward contract are both contracts which need to deliver an asset on a future date at a pre arranged price. The only difference is future are exchange traded and forwards are traded over the counter. Futures are standardised and face an exchange and on the other hand forwards are customised and face a non exchange counter party.

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