What is the major distinction between a cash commodity contract and a commodity futures contract?
Cash trades often get settled 2-3 days after the transaction date, while futures contracts have a pre-determined delivery date in the future that could for example be in 1, 2, or 3 months.
What is the difference between cash and futures contracts?
Cash markets are also known as spot markets because their transactions are settled "on the spot." This can be contrasted with derivatives markets such as the futures market, where buyers pay for the right to receive a good, such as a barrel of oil, at a specified date in the future.
What is the difference between commodity and commodity futures?
Futures are a type of financial derivative in which you agree to buy or sell a certain asset at a certain price at a particular time in the future. Commodities are a type of asset representing fungible goods, such as oil, iron ore, or wheat. Commodities are usually traded using futures.
What is the main difference between the local cash price of a commodity and the futures price of that commodity called?
Basis - The difference between the futures price for a commodity and its cash price at a specific location.
What is a cash commodity contract?
A cash commodity refers to physical goods like aluminium, cotton, gold, silver, zinc, and other tangible goods which are delivered to a trader or company most commonly after exercising derivatives like options and futures contracts.
What are the two key differences between a futures contract and an option contract?
| Options | Futures |
|---|---|
| Options can be exercised early or lapsed without any obligation. | Futures must be fulfilled or closed before expiration. |
| Options have lower liquidity and volume than futures. | Futures have higher liquidity and volume than options. |
What is a futures contract in simple terms?
A futures contract is a legal agreement to buy or sell a particular commodity asset, or security at a predetermined price at a specified time in the future. Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange.
What is the basis between cash and futures?
Basis is most often calculated as the difference between the cash price and the nearby (closest to expiration) fu‑ tures contract. For example, in June the wheat basis would be calculated using the current cash price minus the July futures contract price.
What is the difference between cash price and futures price?
In a cash market, financial instruments are traded, and there is actual delivery of stocks. On the other hand, in a futures market, future contracts are bought and sold at a predefined price with a mutually agreed date in the future.
What is a commodity future contract?
A commodity futures contract is an agreement to buy or sell a particular commodity at a future date. The price and the amount of the commodity are fixed at the time of the agreement. Most contracts contemplate that the agreement will be fulfilled by actual delivery of the commodity.
What is an example of a commodity futures contract?
As an example, let's say an initial margin amount of $3,700 allows an investor to enter into a futures contract for 1,000 barrels of oil valued at $45,000—with oil priced at $45 per barrel. If the price of oil is trading at $60 at the contract's expiry, the investor has a $15 gain or a $15,000 profit.
What is an example of a commodity future?
The primary purpose of commodity futures is to provide a mechanism for hedging against price volatility. For example, a farmer may enter a futures contract to sell his wheat at a fixed price before the harvest to protect against potential price fluctuations.
What is the difference between a commodity future and a financial future quizlet?
Commodity futures take a long or short position in the commodity market, while financial futures take a long or short position on a financial asset.
Why futures are better than cash?
Short-term traders will generally prefer cash vs futures due to the lower spreads, while long-term traders may opt for futures CFDs instead, as they are less sensitive to the spread, but prefer not to pay daily swap charges.
Why trade futures instead of cash?
Futures Are Highly Leveraged Investments
What trading futures essentially means for the investor is that they can expose themself to a much greater value of stocks than they could when buying the original stocks.
What is a commodity contract called?
In finance, a futures contract (sometimes called futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset transacted is usually a commodity or financial instrument.
Do commodity futures actually get delivered?
When you order something online, it arrives to you via delivery. Futures delivery works basically the same way—it's the receipt or transfer of an actual commodity or product. But unlike online shopping, only two methods of delivery are available for futures contracts, and those methods are determined ahead of time.
What are 4 examples of commodity money?
Historically, examples of commodity money include gold, silver, tea, alcohol, and seashells. Even if no one would accept such goods as trade, the owners could still use them for their purposes.
What is one of the main differences between futures contracts and forward contracts quizlet?
Futures contracts are standardized; forward contracts are not.
What are the key differences between option and futures contracts explain at least 3 differences?
Key Takeaways
An option gives the buyer the right, but not the obligation, to buy (or sell) an asset at a specific price at any time during the life of the contract. A futures contract obligates the buyer to purchase a specific asset, and the seller to sell and deliver that asset, at a specific future date.
What is the distinguishing feature of a futures contract?
Features of a futures contract
Standardised agreement: Futures contracts have standardized terms, including the quantity, quality, and delivery date of the underlying asset. Exchange-traded: They are traded on organized exchanges, providing liquidity and transparency.
What is a futures contract Quizlet?
A futures contract is an agreement to buy or sell an asset at a certain time in the future for a certain price, by contrast in a spot contract there is an agreement to buy or sell the asset immediately (or within a very short period of time).
What are futures contracts based on?
Futures are derivatives, which are financial contracts whose value comes from changes in the price of the underlying asset. Stock market futures trading obligates the buyer to purchase or the seller to sell a stock or set of stocks at a predetermined future date and price.
What is the basis of commodity futures?
Basis is the difference between a local cash (or street) price and the futures market price for that commodity. Basis is calculated as cash price minus futures price.
Can I buy in cash and sell in futures?
As we are aware, in an arbitrage trade you buy in the cash market and sell in the futures market. That means you are long in the cash market and short in the futures market on the same stock and in the same quantity.
