Does a futures contract require delivery? (2024)

Does a futures contract require delivery?

In some cases, however, futures contracts will require physical delivery. In this scenario, the investor holding the contract upon expiration would be responsible for storing the goods and would need to cover costs for material handling, physical storage, and insurance.

Are most futures contracts settled by delivery?

Although physical delivery is an important mechanism for certain energy, metals and agriculture products, only a small percent of all commodities futures contracts are physically delivered. In most cases, delivery will take place in the form of cash settlement.

Who determines when delivery will take place in a futures contract?

The answer is a. The exchange specifies the exact delivery date. Futures are standardized contracts, with the terms established by the exchange. The exchange also mitigates counterparty risk by facilitating the transactions.

What are delivery options in futures contracts?

A delivery option is a feature added to some interest rate futures contracts. The delivery option permits the option seller to determine the timing, location, quantity, quality, and the wildcard features of the underlying commodity, which is set to be delivered. Delivery option terms are stated in the delivery notice.

Why are futures rarely delivered?

Date and geographic location for physical "delivery" of the underlying asset (but actual delivery rarely happens because most contracts are liquidated before the delivery date)

How do futures contracts settle?

Most options and futures contracts are cash-settled. However, an exception is listed equity options contracts, which are often settled by delivery of the actual underlying shares of stock.

What is the delivery margin for futures?

Margins required are a minimum of 40% of the contract value for futures on the last day of expiry. For in the money long or buy option positions, a delivery margin is assigned from 4 days before expiry. The margins for in the money long options go up from 10% to 50% of contract value—50% on the last two days of expiry.

What happens as futures contracts approach the delivery date?

Settlement: As the delivery date approaches, the futures contract can be settled in one of two ways: physical delivery or cash settlement. In physical delivery, the seller delivers the underlying asset to the buyer. In cash settlement, the parties simply settle the net cash difference.

Do futures contracts have a range of delivery dates?

However, in a futures contract, the transaction is standardised in terms of quantity, quality, and delivery date. A forward contract usually only has one specified delivery date, whereas there is a range of delivery dates in a futures contract.

How long can you hold a futures contract?

And unlike stocks, futures contracts do expire. The expiration date is the last day a contract can be traded, and expiration cycles can be monthly or quarterly. Keep in mind that different products follow different expiration cycles. To view all expiration cycles in thinkorswim, go to the Trade tab> All Products.

Do futures have physical delivery?

In case a trader has an open position in a Stock Futures contract & In-The-Money Stock Options that has not been squared off on expiry date, these contracts would have to be physically settled.

What is the cheapest to deliver futures contract?

Cheapest to deliver is the cheapest security that can be delivered in a futures contract to a long position to satisfy the contract specifications. It is common in Treasury bond futures contracts.

What are the main disadvantages of futures contracts?

Future contracts have numerous advantages and disadvantages. The most prevalent benefits include simple pricing, high liquidity, and risk hedging. The primary disadvantages are having no influence over future events, price swings, and the possibility of asset price declines as the expiration date approaches.

What are the problems with futures contracts?

One of the simplest and commonest risks of futures trading is the price risk. For example, if you buy futures, you expect the price to go up. However, if the price goes down, you are at risk of loss. For futures traders, the biggest risks of futures trading come from the adverse movement of prices.

Why use futures instead of forwards?

Since forwards are privately negotiated, they provide the guarantee to settle the contract. Futures, on the other hand, have an institutional guarantee provided by the clearinghouses that back them. Unlike forwards, where there is no guarantee until the contract settles, futures require a deposit or margin.

Do futures trades settle immediately?

Hence all the future contracts will automatically expire on the last day of the F&O expiry at the close of trade. Apart from the futures contract settlement that happens on the last day of F&O expiry, there is also a future contract settlement process that the exchange follows daily.

Do futures settle instantly?

Government securities, stock options, and options on futures contracts settle on the next business day following the trade or T+1. Futures contracts themselves settle the day of the trade.

What is the final settlement price of a futures contract?

Final settlement price for futures contract and option contract shall be the closing price of the relevant underlying index/security in the normal market of the Capital Market segment of the Stock Exchange on the last trading day of such futures contract.

How much does 1 futures contract cost?

Fees for futures and options on futures are $2.25 per contract, plus exchange and regulatory fees. Note: Exchange fees may vary by exchange and by product. Regulatory fees are assessed by the National Futures Association (NFA) and are currently $0.02 per contract.

What is a typical futures contract size?

One futures contract represents 5,000 bushels. Contract sizes reflect some historical ties with how grains and other agricultural goods were once transported, but nowadays, one standard railcar holds about 110 tons of soybeans, or about 3,600 bushels. A barge car holds about 52,000 bushels.

How many futures contracts can I trade?

Theoretically, you can trade as many E-mini contracts as your account balance allows you. Because E-mini contracts are traded on margin ($500/contract) you can trade more contracts with less money. For example, if you have $3,500 in your account, you could technically trade 7 contracts ($500 x 7 =$3500).

What is a delivery month in futures?

What Is a Delivery Month? The term delivery month refers to a key characteristic of a futures contract that designates when the contract expires, and when the underlying asset must be delivered or settled.

How do investors offset futures contracts before their delivery dates?

However, some futures contracts require cash settlement instead of delivery, and most contracts are liquidated before the delivery date. To offset a long position, an investor would sell the same futures contract. Conversely, to offset a short futures position, an investor would buy the same futures contract.

What is the difference between delivery date and shipping date?

To put it as simply as possible: shipping is the date the product will leave the supplier's warehouse while delivery is the date the package will make it to the customer's doorstep. The terms are often confusing for customers; however, you can avoid this by providing two dates: the shipping date and delivery date.

What must the basis equal at the delivery date for a futures contract?

As the time to delivery passes, the futures price will change to approach the spot price. When the futures contract matures, the futures price and the spot price must be the same. That is, the basis must be equal to zero, except for minor discrepancies due to transportation and other transactions costs.