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What are commodity futures?
Futures contracts and options on futures contracts exist for a wide range of products, including agricultural products such as coffee and soybeans, livestock such as pork bellies and cattle, natural resources such as oil and gas, precious metal such as gold and platinum, financial instruments such as bonds and stock indices, and currencies such as the British pound and the Japanese yen.
A futures contract is a legally binding agreement between two parties to buy or sell in the at a specified date in the future a specific quantity of a commodity (such as wheat, pork bellies, gold, oil, orange juice, etc.) at a specific price, on a designated exchange. When the futures contract is entered into the buyer and seller are agreeing on the price for a product to be delivered or paid for, and the date for delivery and payment is known as the "settlement date." Although actual delivery of the commodity can take place in fulfillment of the contract, most futures contracts are actually closed out or "offset" prior to delivery. |
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