What are commodity futures?
Ans:- Commodity futures are contracts traded on exchanges, that allow the participant to buy or sell a certain commodity at a certain traded price for future delivery. Both sellers as well as buyers can choose to liquidate the contract by cash settlement of the price difference between the contracted price and the liquidated price on or before the last trading session of the contract month. In case of futures settled in delivery, it is the seller’s option to give delivery. Futures contracts are mostly cash settled and globally only 1% to 5% of exchange traded futures contracts are settled in delivery.
A commodity futures contract is an agreement to buy or sell fixed amounts of a specified commodity at a predetermined price and date. While there are speculators in every market, commodity futures are traded predominately by those looking to hedge the downside risk. The futures market for commodities allows buyers to hedge against falling prices of the physical commodity while sellers will use futures contracts to guarantee a sales price in the future. As opposed to index futures, commodity futures are settled through physical delivery. For example, one “live cattle futures contract” commands 40,000 pounds of live cattle. At expiration, the buyer will be responsible for taking physical delivery of those cattle. Various Types of Commodity Futures Commodity futures can be broken up into a few main categories: grains, livestock, energy, metals, and food/fiber. Grains Grain futures contracts include corn, soybeans, soybean oil, wheat, oat, and soybean meal. Grain trading is very tricky aro
Commodity futures are agreements of contracts that are utilized to purchase or sell a specified amount of a given commodity. The agreement will commit the buyer and the seller to a fixed price that will be in effect on a specified future date. When this future date arrives, the buyer is expected to have paid the agreed upon price for the futures, and the seller will have delivered ownership of the commodities to the buyer. Commodity futures are based on physical commodities that include items such as gold, silver, other precious metals, and grains. Various types of food items, such as corn or pork bellies, are also considered to be commodities. Commodity futures are based on the perceived worth of the goods today and at some future point in time. Futures on these types of goods recognize two key factors. First, the physical commodity already exists. Second, there is an anticipation on the part of the buyer that the commodity will increase in value over time. When this is the case, a bu
Commodity Futures exist to allow buyers and sellers of commodities to trade future commodity production and guarantee their future revenues or costs. Futures are traded in a variety of products, from oil and gas, livestock and agricultural produce to precious and industrial metals and avoids exposure to physical commodities. Hermes launched HCIF after considerable research into Commodities. Unlike some other alternative asset classes, such as hedge funds, Commodities are a clearly definable asset class with a long trading history allowing robust analysis of trading data. Indeed these assets have been trading in the US for over 100 years and it is thought that they have their origin in rice futures traded in Japan in the early eighteenth century. This history has enabled us to back-test the properties of commodity futures risk and return with a high degree of confidence. The conclusion of this research was clear for the BT Pension Scheme – that an allocation away from the dominant equit
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
