What is Physical Delivery in Futures Trading?
Physically delivered futures contracts are what futures contracts were designed to be right from the start being an instrument that binds the long and the short to delivering the physical underlying commodity at a pre-determined quantity and grade at a pre-determined time and location. This is the same function physically delivered futures contracts do today but with the recent innovation known as “Cash Delivery”, it has become necessary to make this distinction clear. Yes, for more than a hundred years of futures trading, futures contracts were designed only to be physically delivered as futures derive their value and price basis from the price of the underlying commodities in question. Physically delivered futures contracts requires the short to make delivery and the long to take delivery of the underlying commodity upon expiration of the futures contracts. For instance, if you are long a physical delivery futures contract on a bushel of Wheat and held the position all the way throug