Futures Delivery

Futures delivery is what it is called when a commodity is delivered to the investor. However, it is important to note that commodity delivery means the delivery of a physical object. For instance, the delivery may be grain that was sold by a farmer for a price that the grain was predicted to be by the delivery date. That physical object must be delivered to a physical location anywhere in the world that was specified as a part of the contract.

So if you have been promised 5 pounds of gold for a specific price to be delivered to you in New York on July 10, 2011, then that commodity will be delivered to you in New York on July 10, 2011. The only thing that can really differ, however, is the delivery point because transportation costs can come into play. This is where a compromise can be met.

This same concept works for all securities that you have invested in. Because of the complexity of futures, it is good to consult with a certified financial advisor to help you with these investments along with a better understanding of futures and fair values. The contracts can be rather confusing, especially if you are new to futures trading.

Transferable Notices

When it is time for the seller to fulfill the futures contract for delivery, the Clearing House responsible for overseeing fulfillment sends notice to the buyer. You, as the buyer, then have the option to retender by selling the contract or you can accept the contract delivery.

If you are going to retender your futures contract, you do need to decide this in advance because time is limited. You do want to consult with your financial advisor regarding which industries use transferable notices and if it is possible for a contract to be retendered the following day. There are certain exclusions that apply as well, so this must be considered very carefully.

A non-transferrable notice occurs when the buyer must accept the notice that the seller is selling as schedule and must accept the commodity. A buyer may still sell a contract and retender a commodity if it is not the last selling day, but ownership of the commodity must be assumed for up to three business days and assume responsibility for all costs that are associated with this ownership.

Cash Settlement

On the last day of trading, some futures contracts are closed out. This is opposed to the commodity being delivered. To offset the futures contract that is expiring, a cash price is determined and that cash price is added to the account of the customer.

These are unique in that the threat of receiving a futures delivery is not an issue and there are no penalties that occur when the contract is carried until the expiration date. However, this doesn't mean that these futures do not pose any type of risk. For instance, any major changes in the market from one day to the next can dramatically reverse a price. The opposite can occur as well. Those items that appeared to have no worth may suddenly be worth something. This is the suspense that is the futures market.

There are a variety of other purposes and functions behind futures. For instance, hedgers use what are called "special offsets" and they do this to predict prices and conduct a number of studies. There are also long positions, short positions, day trades, and so much more that can further drive the complications of futures. As a customer, there are also a number of special requests that you can make in order to achieve a certain open position, but there may be no economic benefit.

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