What are Futures?
A single futures contract is the obligation to buy or sell a fixed
quantity of a commodity (which includes interest rate products, stock indices etc.) of
fixed quality, for delivery at a pre-determined date but at a price agreed on today. The
delivery date is stated in the contract specifications along with the exact quality of the
commodity acceptable for delivery. This standardisation, with price the only variable,
allows market participants to trade with each other on regulated exchanges.
For instance the Sydney Futures Exchange wheat
contract is for 50 tonnes of wheat. If you were to trade "March Wheat" (wheat
for delivery in March on the specified date) today then you would be agreeing on a price
for the wheat that would be exchanged and paid for in March. Few market participants
actually go to "delivery" but rather trade out of their position. Had you bought
1 March SFE Wheat last week you may choose to sell it today thereby exiting or obviating
your obligation under that contract. In other words, +1 (buy) -1 (sell) = 0. Conversely a
trader may sell first, expecting prices to fall, then buy back later. ie -1+1 = 0.
Please contact Bell Commodities for further information and speak to a licensed Futures Adviser.
• Glossary
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