Actuals are the physical commodity that underlies a futures contract or is traded in the physical market. 

A contract for actuals in the physical market is unlikely to change hands and it often contains more conditions as to the grade and quality of the actuals compared to a futures market contract. In the futures market, two parties enter into an exchange-traded contract in which one party agrees to deliver a set quantity and quality of the underlying commodity; the other party agrees to purchase the commodity. Manufacturers, refineries, processors, and other users of the raw materials and commodities traded on the futures market typically enter into contracts with the intention of taking delivery of the actuals to ensure they have sufficient stocks on hand to keep operating. These buyers who are also end-users of the actuals may use the cash settlement version of the contract purely to hedge contracts they have in the non-exchange-traded physical market.

Actuals

Against actual is an exchange between commodities traders of a cash position in a certain commodity for a futures contract for the same commodity.

The term “against actual” refers to a type of transaction regularly carried out in the commodities futures markets. In an against actual transaction, the holder of a commodities futures contract that is coming close to its delivery date will exchange that contract with another market participant who had previously sold a futures contract for that same commodity. Speculator A bought oil futures because she believed oil prices would rise, whereas Speculator B sold oil futures because he believed prices would fall. The two parties to an against actual transaction will agree to settle their respective contracts in cash, based on a price differential calculated from the current market value of the two futures contracts. Since the price of oil fell, Speculator A would pay an extra premium to Speculator B to reflect the fact that Speculator B’s futures contract was more valuable.

Against Actual

Association of Futures Brokers And Dealers was a London-based organization for regulatory supervision of UK-based practitioners in the futures industry.

Welcome to the Financial Services Register

Association Of Futures Brokers And Dealers (AFBD) was an organization established by the major London futures exchanges to provide regulatory supervision for brokers, dealers and other practitioners in the futures industry. The association was a self-regulating organization when it was founded in 1984, but was later incorporated into the Financial Services Authority, or FSA, which itself has since been abolished, with its regulatory duties split between the new Financial Conduct Authority, or FCA, and Prudential Regulation Authority (PRA), which is structured as a limited company owned by the Bank of England. In 1991, AFBD merged with The Securities Association to form the United Kingdom's Securities and Futures Authority, or SFA, which sets the rules of fair practice as well as capital requirements for firms active in the securities, futures and options markets. Association Of Futures Brokers And Dealers (AFBD) was an organization established by the major London futures exchanges to provide regulatory supervision for brokers, dealers and other practitioners in the futures industry. FCA maintains a Financial Services Register that allows consumers to ensure that specific futures dealers are authorized by the agency.

Association of Futures Brokers And Dealers (AFBD)

The Australian Future Fund is a sovereign wealth fund established in 2006 to satisfy the government's public pension obligations.

Australia’s Future Fund Investment Wizardry

Although the fund management team is responsible for balancing the risk associated to maximize returns, it does not allocate invested funds or decide which projects each fund supports.
The Medical Research Future Fund was founded in 2015 to underwrite long-term research and innovation within Australia’s borders.
The Aboriginal and Torres Strait Islander Land and Sea Future Fund The Australian government established the Australian Future Fund in 2006 with about AUD 60 billion from government surpluses as well as shares and proceeds from the privatization of Telstra, an Australian telecommunications company.﻿﻿ The AFF was specifically designed, though, to meet future pension obligations of the Australian government. The upside of using external managers is that it allows AFF management to evaluate those managers’ returns and select among the highest performers for future investments.
If you're interested in investing in the Australian market, consider putting your money into a mutual fund, exchange-traded fund, or an American depositary receipt. The term Australian Future Fund (AFF) refers to an Australian sovereign wealth fund (SWF) established by the country's federal government.

Australian Future Fund

In the commodity futures markets, the term “back months” refers to the futures contracts whose delivery dates are relatively far in the future.

In the commodity futures markets, the term “back months” refers to the futures contracts whose delivery dates are relatively far in the future. Of course, if market participants believe that the price of the commodity will decline over time, then back month contracts might be cheaper than front month contracts, in spite of these factors. Back month contracts tend to be more expensive than front month contracts, because they incorporate additional risk premiums due to time and relative liquidity. In the commodity futures markets, the term “back months” refers to the futures contracts whose delivery dates are relatively far in the future. The contracts that have delivery dates farthest into the future are known as the back month contracts for that commodity.

Back Months

The Basis grade is the minimum acceptable standard required for a deliverable commodity used as the actual of a futures contract. 

The basis grade is the minimum accepted standard that a deliverable commodity must meet for use as the actual asset of a futures contract. The basis grade is the minimum accepted standard that a deliverable commodity must meet for use as the actual asset of a futures contract. The terms of the contract identify differentials, basis grade, and other conditions related to quality, premiums, or penalties and are fixed conditions on most exchanges. Products of a higher quality which exceed the basis grade command a higher value and justify better exchange terms. For example, the setting of the basis grade for a crude futures contracts is according to the specific levels of hydrogen and sulfur contained in the oil.

Basis Grade

Booking the basis is a sales arrangement that locks in a basis that will be added to the price of goods, which will be determined at a later date.

Booking the basis is an arrangement made between a buyer and a seller using a forward sales agreement. Booking the basis effectively locks in the current basis, or the discrepancy between the futures contract price and the spot price of the underlying asset. The basis and price of the goods will be added together at a later date to provide the full price of the sales agreement. Booking the basis locks in the basis for a forward sales agreement but does not lock in the final total price of the agreement. The full price is the basis added to (or subtracted from) the price of the goods, which will be determined at a later date.

Booking the Basis  and Example

A carrying charge market is a futures market where long-maturity contracts have higher future prices, relative to current spot prices.

In a carrying charge market, the futures price of a commodity is higher than its spot price because of the costs—or “carrying charges”—associated with physically storing that commodity. For this reason, equity index futures typically have futures prices that are below their spot prices, to reflect the fact that the futures owners are “missing out” on the dividend income earned by the asset holders.
A carrying charge market can represent the fluctuations seen as a result of these types of situations. In a carrying charge market, the futures price of a commodity is higher than its spot price because of the costs—or “carrying charges”—associated with physically storing that commodity. These types of commodity futures are known as having “carrying charge markets” because their futures prices are influenced by their carrying charges. From this perspective, the futures holders in a carrying charge market are willing to pay extra for the futures contract because it allows them to avoid paying these carrying charges.

Carrying Charge Market

A cash contract is a financial arrangement that requires delivery of a particular amount of a specified commodity on a predetermined date.

A cash contract is a financial agreement in which one party agrees to purchase a specified quantity of a commodity on a predetermined date. Lastly, ABC can use OTC contracts when it needs to source coffee beans or other commodities that fall outside of the standardized quantities, delivery times, or commodity types offered by the spot and futures markets. This method of using futures contracts is especially attractive when ABC is concerned that the price of coffee beans might rise during the forecasted period, because the futures allow ABC to lock in a known price today for several months’ supply of beans. ABC relies on cash contracts to supply most of its coffee beans, paying in cash for specified quantities of beans and taking delivery of them within a few days of the purchase. Unlike futures contracts in which the purchaser often closes out their contract for cash prior to the delivery date, the buyer in a cash contract always intends to take physical delivery of the commodity.

Cash Contract

The Chicago Mercantile Exchange or CME is a futures exchange which trades in interest rates, currencies, indices, metals, and agricultural products.

"CME Group to Permanently Close Most Open Outcry Trading Pits; Eurodollar Options Pit Will Remain Open." 

"Managing Climate Risk with CME Group Weather Futures and Options." 

 "CME Group Number of Employees 2006-2021."

Table of Contents
What Is the Chicago Mercantile Exchange?
Understanding the Chicago Mercantile Exchange (CME) CME Futures and Risk Management
CME Regulation
Chicago Mercantile Exchange vs. Chicago Board of Trade
Example of Chicago Mercantile Exchange
The Bottom Line
Chicago Mercantile Exchange FAQs
The Chicago Mercantile Exchange (CME), colloquially known as the Chicago Merc, is an organized exchange for the trading of futures and options. In addition to the Chicago Mercantile Exchange, CME Group also owns the Chicago Board of Trade, the New York Mercantile Exchange, and six other exchanges. In 2007, the CME merged with the Chicago Board of Trade to create CME Group, one of the world's largest financial exchange operators. Table of Contents
What Is the Chicago Mercantile Exchange?
Understanding the Chicago Mercantile Exchange (CME)

Chicago Mercantile Exchange (CME)

A commercial hedger is a company that hedges the risk of price changes in commodities it needs to purchase on a regular basis to operate its business.

A commercial hedger is an organization that uses derivatives such as futures contracts to lock in the price of specific commodities it uses in running its business. To stabilize its price structure and lock in a price for copper it needs for future production the company could buy copper futures contracts. When the copper price rises, the electrical wiring company is not required to take physical delivery of the commodity but may sell the futures at a profit in the open marketplace. A commercial hedger is an organization that uses derivatives such as futures contracts to lock in the price of specific commodities it uses in running its business. Even though the spot price of copper may be $3.12 per pound, the price for future delivery is often higher to account for storage costs.

Commercial Hedger

A commercial trader trades on behalf of a business or institution. In the commodities market, commercial traders are hedgers.

In the commodities markets, the Commodity Futures Trading Commission (CFTC) has a special classification for "commercial traders", and describes them as traders that use the futures market primarily to hedge their primary business activities. Institutional commercial traders are also used for speculative purposes, such as when an oil company hires traders to buy and sell oil futures contracts for profit (not hedging), or when a bank has a proprietary trading desk where the sole purpose is to make more money using the bank's money. The CFTC produces a weekly “Commitments of Traders” report which shows the number of trades placed, and contracts held, by commercial traders and non-commercial traders. In the commodity markets, the CFTC publishes the weekly Commitments of Traders report which reveals the position sizes of commercial and non-commercial traders. The CFTC produces a weekly report, called the Commitments of Traders (COT) that provides a breakdown of activity from commercial and non-commercial traders.

Commercial Trader

A commodity pool is a private investment structure that combines investor contributions to trade futures and commodities markets.

A commodity pool is a private investment structure that combines investor contributions to trade the futures and commodities markets. Commodity ETFs can be a type of commodity pool where investors pool financial resources to gain access to commodity futures markets. The commodity pool operator receives the funds to use in the operation of a commodity pool, syndicate, investment trust, or another similar fund, specifically for trading commodities. Hedge funds that are commodity pools must be registered with the Commodity Futures Trading Commission as commodity pools and Commodity Trading Advisors (CTAs). Commodity pools are funds that contain a pool of capital from many investors in which the contributed money is combined and invested by the commodity pool investment management team.

Commodity Pool

A commodity swap is a contract where two sides of the deal agree to exchange cash flows, which are dependent on the price of an underlying commodity.

A commodity swap is a type of derivative contract where two parties agree to exchange cash flows dependent on the price of an underlying commodity. A party that wants to hedge their risk against the volatility of a particular commodity price will enter into a commodity swap and agree, based on the contract set forth, to accept a particular price, one that they will either pay or receive throughout the course of the agreement. The floating-leg component is tied to the market price of the underlying commodity or agreed-upon commodity index, while the fixed-leg component is specified in the contract. Generally, the floating-leg component of the swap is held by the consumer of the commodity in question, or the institution willing to pay a fixed price for the commodity. The fixed-leg component is generally held by the producer of the commodity who agrees to pay a floating rate, which is determined by the spot market price of the underlying commodity.

Commodity Swap

The term “contract unit” refers to the quantity of the underlying asset represented by a single derivatives contract.

Investor Bulletin: An Introduction to Options

The term “contract unit” refers to the quantity of the underlying asset represented by a single derivatives contract. For example, a CAD/USD futures contract traded on the Chicago Mercantile Exchange (CME) has a contract size of 100,000 CAD, while a Micro E-mini contract also traded on the CME has a size of 10,000 CAD. For example, if someone buys one corn futures contract, they are actually buying 5,000 bushels of corn, whereas if someone buys one oil contract, they are buying 1,000 barrels of oil. The term “contract unit” refers to the quantity of the underlying asset represented by a single derivatives contract. Likewise, if the contract unit is too small, trading becomes expensive since there is a cost associated with each contract traded.

Contract Unit

The Commitments of Traders or COT report is a weekly report showing the positions of futures market participants. Learn how to use the COT report.

Table of Contents
What Is the COT Report?
Commitments of Traders Report
Special Considerations
Types of COT Reports
Example of a COT Report
COT Report FAQs As with the others, there are four different classifications in this report: dealer/intermediary, asset manager/institutional, leveraged funds, and other reportables.
Example COT Report for Selected Financial Futures
Institutional
Leveraged Funds
Report Date
Open Interest
DJIA Consolidated
DOW JONES INDUSTRIAL AVG- x $5
DOW JONES U.S. REAL ESTATE IDX
S&P 500 Consolidated
S&P 500 STOCK INDEX
E-MINI S&P CONSU STAPLES INDEX
E-MINI S&P ENERGY INDEX
E-MINI S&P 500 STOCK INDEX
NASDAQ-100 Consolidated
Source: CFTC
The COT reports provide a breakdown of each Tuesday’s open interest for futures and options on futures markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.
The COT reports are based on position data supplied by reporting firms (FCMs, clearing members, foreign brokers, and exchanges). The legacy COT simply shows the market for a commodity broken into long, short, and spread positions for non-commercial traders, commercial traders, and non-reportable positions (small traders). Table of Contents
What Is the COT Report?
Commitments of Traders Report
Special Considerations
Types of COT Reports
Example of a COT Report
COT Report FAQs The long version of a COT report, in addition to the information in the short report, groups the data by crop year, where appropriate, and shows the concentration of positions held by the largest four and eight traders.

Commitments of Traders Report (COT)

"Current delivery” refers to futures contracts for which physical delivery of the underlying commodity will occur in the current month, or soon after.

In the commodity futures markets, “current delivery” refers to the futures contracts for which the physical delivery of the underlying commodities will occur in the current month. In the commodity futures markets, “current delivery” refers to the futures contracts for which the physical delivery of the underlying commodities will occur in the current month. If no futures contracts provide delivery in the current month, then the term “current delivery” would refer to the contract that offers the nearest possible delivery date. Current delivery commodity futures are one of the many types of futures traded today, focusing on contracts that are very close to receiving delivery of their underlying commodity. Current delivery futures are identical to the other months’ futures contracts, aside from their delivery date being in the current month.

Current Delivery

The delivery point is the place specified in futures contracts where the physical asset is delivered and applies only to physical delivery contracts.

The delivery point, in futures contracts or other derivatives, is the location where the physical commodity underlying the contract will be delivered. Corn and soybean futures executed by the Chicago Board of Trade (CBOT) is to terminals on a 204-mile section of the Illinois River
Live cattle and hogs arrive at various livestock yards and slaughterhouses separated among five regions or territories
West Texas Intermediate (WTI) crude oil futures exchanged on the NYMEX and have a delivery point at the Cushing Hub in Oklahoma
When delivery takes place, a warrant or bearer receipt—which represents a specified quantity and quality of a commodity in a specific location—changes hands from the seller to the buyer. The delivery point, in futures contracts or other derivatives, is the location where the physical commodity underlying the contract will be delivered. With physical delivery, the price of commodities differs by location due to the costs of transporting them from their source to the delivery point. However, the delivery point applies only to future contracts that stipulate the physical delivery of the asset.

Delivery Point

A delivery instrument is a document given to the holder of a futures contact that may be exchanged for the contracted commodity when the contract expires. 

A delivery instrument is a contractual document that is traded as part of a commodity futures contract. Three of the key parties involved in the soybean futures market are the companies that need to buy physical soybeans for their business operations, the speculators who buy and sell soybean futures contracts without intending to take delivery of them, and the companies that store and ship the soybeans to whichever party ultimately takes delivery of them. By allowing traders to easily transfer the right to receive physical delivery, speculators can quickly release themselves from the obligation to make or receive delivery by selling their futures contracts—and with it, the delivery instrument—to another buyer. It entitles the holder to physical delivery of a specified quantity of the commodity in question, such as soybeans in the case of soybean futures contracts. Speculators will generally not take delivery of the commodities underlying their futures contracts, meaning that a given batch of a commodity might change hands legally several times before being physically received by a buyer.

Delivery Instrument

A delivery notice is part of a futures contract that defines the details for the delivery of a commodity due for settlement. 

In the commodities futures markets, delivery notices are a document provided by the seller of a futures contract. If two parties agree to a commodities futures contract and elect not to settle in cash, then the seller of the contract—i.e. the person who has promised to deliver the physical commodity to the buyer—must provide their counterparty with a delivery notice as the contract nears its delivery date. In the commodities futures markets, delivery notices are a document provided by the seller of a futures contract. To increase speed and minimize costs, these transactions follow a standard contractual template, in which details such as the commodity's type, quantity, quality, delivery date, and delivery location are specified in a single format. For example, a coffee roasting company might purchase coffee bean futures with non-transferable delivery notices, since they will have no difficulty receiving and using the underlying commodity.

Delivery Notice

A delivery option permits the seller of a futures contract to determine the timing, location, quantity and quality of the underlying commodity.

Treasury Futures Delivery Options, Basis Spreads, and Delivery Tails

A delivery option is a feature added to some interest rate futures contracts. The accrued interest option gives the seller the right to deliver the bond on any business day of the delivery month, which means they can track short-term interest rates over the course of the month to yield the best deal. 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. The quality option is a type of rainbow option which allows the seller to deliver any Treasury bond with at least 15 years to maturity or call date. American options allow option holders to exercise the option at any time before and including its maturity date.

Delivery Option

The delivery price is the price at which one party agrees to deliver the underlying commodity and at which the counterparty agrees to accept delivery.

The delivery price is the price at which one party agrees to deliver the underlying commodity and at which the counter-party agrees to accept delivery. In forward contracts, the forward price and the delivery price are identical when the contract begins, but as time passes, the forward price will fluctuate and the delivery price will remain constant. Other prices such as the cash price (or spot price) of the commodity or the price to enter or exit a new futures or forward contract do change. The delivery price is the price at which one party agrees to deliver the underlying commodity and at which the counter-party agrees to accept delivery. The concept of the delivery price is an important one because it is set on the day the contract is entered and does not fluctuate for the duration of the contract.

Delivery Price

Documentary collection is a method of trade finance in which an exporter's bank acts to collect payment for shipped goods, forwarding the necessary documents to the importer's bank.

Documentary collection is a form of trade finance in which an exporter is paid for its goods by an importer after the two parties' banks exchange the required documents. The exporter's risk is higher with a time draft versus a sight draft, as the buyer's bank would have released the documents with the buyer's acceptance of the time draft—meaning the buyer could already have possession of the merchandise by the time payment is due. A sight draft reduces the exporter's risk because the buyer's bank will not release the documents without payment from the buyer, but neither side's bank assumes any financial responsibility in a documentary collection transaction. 4.  Once the buyer's bank has been paid, or the buyer has accepted the time draft, the bank releases the documents to the buyer. Documentary collection is method of trade finance in which an exporter's bank forwards documents to an importer's bank and collects payment for shipped goods.

Documentary Collection

Domestic box office receipts are a type of futures contract based on movie revenues. They are currently banned in the United States.

Congress Passes Movie Futures Trading Ban

H.R. 4173: Dodd-Frank Wall Street Reform and Consumer Protection Act

The CFTC Approves Box Office Futures Trading

A Domestic Box Office Receipt (DBOR) futures contract is a type of derivative product whose value is based on the future box office revenues generated from an upcoming movie. The act included stipulations that prohibited futures contracts on movie box office sales, or any index or instrument that could or would mimic such sales.﻿﻿ While the CFTC originally voted three-to-two in favor of approving the contracts, one month later, the sweeping reform bill banned such contracts for the foreseeable future in the United States. DBOR futures contracts were cash-settled, with the settlement amount calculated based on the sum of all box office receipts generated in the United States and Canada within the first four weeks following a film’s initial release. A Domestic Box Office Receipt (DBOR) futures contract is a type of derivative product whose value is based on the future box office revenues generated from an upcoming movie. Domestic Box Office Receipt (DBOR) futures contracts are a type of derivative whose underlying asset is the box office revenues generated from a newly released film.

Domestic Box Office Receipt (DBOR) Futures Contracts

Entrepôt refers to a port, city, or warehouse where goods are imported to be stored or traded for re-export.

Intermediaries in Entrepot Trade: Hong Kong Re-Exports of Chinese Goods

The term entrepôt, also called a transshipment port and historically referred to as a port city, is a trading post, port, city, or warehouse where merchandise may be imported, stored, or traded before re-export, with no additional processing taking place and with no customs duties imposed. The term entrepôt, also called a transshipment port and historically referred to as a port city, is a trading post, port, city, or warehouse where merchandise may be imported, stored, or traded before re-export, with no additional processing taking place and with no customs duties imposed. The term entrepôt, also called a transshipment port and historically referred to as a port city, is a trading post, port, city, or warehouse where merchandise may be imported, stored, or traded before re-export, with no additional processing taking place and with no customs duties imposed. In the past, entrepots enabled merchants to utilize part of a trade route to sell their goods without having to bear the risks and costs associated with long-distance travel over the entire route. For example, at the height of the spice trade in Europe, the long trade routes necessary for the delivery of spices to Europe made the market price of the goods much more expensive than the original buying price.

Entrepôt

Forward delivery is the final stage in a forward contract when one party supplies the underlying asset and the other takes possession of the asset.

Forward delivery is the final stage in a forward contract when one party supplies the underlying asset and the other pays for and takes possession of the asset. A forward contract is a contract between two parties to buy or sell an asset at a specified price on a future date. Forward delivery is the final stage in a forward contract when one party supplies the underlying asset and the other pays for and takes possession of the asset. The forward rate, which is higher than the current rate, factors for storage costs while the gold is being held by Company B and risk factors. If the current rate is lower than $1,575, then Company A could have been better not entering into the contract, but Company B will be happy they made the deal.

Forward Delivery

Forward spread is the price difference between the spot price of a security and the forward price of the same security taken at a specified interval.

A forward spread is the price difference between the spot price of a security and the forward price of the same security taken at a specified interval. If the spot price is higher than the forward price, then the spread is the spot price minus the forward price. If the forward price is higher than the spot price, then the formula is the forward price minus the spot price. The forward spread is the forward rate less the spot rate or, in the event of a discount rate, the spot rate minus the forward rate. A forward spread is the price difference between the spot price of a security and the forward price of the same security taken at a specified interval.

Forward Spread

Full carry occurs when the later delivery futures contract equals the price of the near contract plus the additional cost of storing the underlying.

Full carry is a term that applies to the futures market and implies that the costs of storing, insuring, and paying interest on a given quantity of a commodity have been fully accounted for in later months of the contract compared to the current month. If the cost of carry for commodity X is $0.50/month and the June contract trades at $10.50/unit, this price indicates a full carry, or in other words, the contract represents the full cost associated with holding the commodity for an additional month. Full carry is a term that applies to the futures market and implies that the costs of storing, insuring, and paying interest on a given quantity of a commodity have been fully accounted for in later months of the contract compared to the current month. Full carry is an idealized concept because what the market prices a longer futures contract is not necessarily the exact value of the spot price plus the cost of carry. But if prices in later contracts rose above $10.50, this would imply that the market participants anticipate higher valuations for the commodity in later months for reasons other than the carry cost.

Full Carry

Futures equivalent is the number of futures contracts needed to match the risk profile of an options position on the same underlying asset.

Futures equivalent is the number of futures contracts required to match the risk profile of an options position on the same underlying asset. For example, if a trader has an options position in gold options that amounts to +30 deltas in terms of futures equivalents, they could sell 30 futures contracts in the market and become delta neutral. Being delta-neutral means that small changes in the direction of the market produce no profit or loss for the trader. Futures equivalent only applies to options where the underlying asset is a futures contract, such as options on stock index (S&P 500) futures, commodity futures, or currency futures. If a trader determines his futures equivalent, they can then buy or sell the appropriate number of futures contracts in the market in order to hedge their position and become delta neutral. As a result, the futures equivalents will change as the market moves, so if the gold market moves up by 1%, while the position may not have made or lost any money, the futures equivalent may have moved from zero for the hedged position to +5.

Futures Equivalent

A futures exchange is a central marketplace, physical or electronic, where futures contracts and options on futures contracts are traded. 

A futures exchange is a marketplace where a diverse range of commodities futures, index futures, and options on futures contracts are bought and sold. A futures exchange is a marketplace where a diverse range of commodities futures, index futures, and options on futures contracts are bought and sold. Where a futures exchange used to have an important physical presence, such as the trading floors in the Chicago Mercantile Exchange (CME) or the New York Mercantile Exchange (NYMEX), it is no longer true that these locations hold as much meaning as they once did. The largest futures exchange in the U.S., the Chicago Mercantile Exchange, was formed in the late 1890s when the only futures contracts offered were for agricultural products. 1:37
The function of a futures exchange is to standardize and promote futures trading for as many participants as possible.

Futures Exchange

A futures spread is an arbitrage technique in which a trader takes two positions on a commodity to capitalize on a discrepancy in price. 

A futures spread is an arbitrage technique in which a trader takes two positions on a commodity to capitalize on a discrepancy in price. For instance, a trader could buy a March wheat futures contract and sell a September wheat futures contract. Alternatively, the trader could sell a March wheat futures contract and buy a September wheat futures contract. For example, a trader who is more bullish on the wheat market than the corn market would buy wheat futures and simultaneously sell corn futures. **Intra-Commodity Calendar Spread:*This is a futures spread in the same commodity market, with the buy and sell legs spread between different months.

Futures Spread

A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction.

A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction. An investor may choose to use a futures strip to lock in the price of natural gas for a year rather than rolling over their trade and repurchasing another futures contract every time a shorter-term futures contract expires. For example, a futures strip could be bought to lock in a specific price for natural gas futures for a year with 12 monthly contracts connected into a strip. A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction. The average price of these 12 contracts is the specific price that traders can transact at, and can be an indicator of the direction of natural gas prices.

Futures Strip

A grading certificate is an official document verifying that an inspector or grading panel has evaluated the quality of a commodity.

Rulebook Chapter 12 CME Spot Market Trading – Electronic

In the commodity futures market, a grading certificate is an important document that establishes the quality and authenticity of the commodities underlying the futures contracts. In the commodity futures market, a grading certificate is an important document that establishes the quality and authenticity of the commodities underlying the futures contracts. Commodities exchanges such as the Chicago Mercantile Exchange (CME) establish defined quality standards for each of the commodities they trade, so that market participants know the quality grade that is expected of them. These commodity grading certificates serve valuable purposes which are helpful to both the buyer and seller of a commodity in the futures market. Grading certificates are required in order to establish a given commodity as being exchange-grade and deliverable for purposes of honoring futures contracts.

Grading Certificate

International Commodities Clearing House (ICCH) was an independent clearing house that preceded the British London Clearing House Ltd (LCH). 

International Commodities Clearing House (ICCH) was an independent clearing house that preceded the London Clearing House Ltd (LCH) in the U.K. Clearing services within LCH Ltd. include SwapClear, ForexClear, RepoClear Ltd., EquityClear Ltd., CommodityClear Ltd., and LCH’s cleared listed rates business. International Commodities Clearing House (ICCH) was an independent clearing house that preceded the London Clearing House Ltd (LCH) in the U.K. LCH Group now consists of LCH Ltd and LCH SA. Clearing services within LCH SA include CDSClear, RepoClear SA, EquityClear SA, and CommodityClear SA.

International Commodities Clearing House (ICCH)

An inland bill of lading is a contract signed between a shipper and a transportation company for the overland transportation of goods.

Some other bills of lading include a clean bill of lading, a direct bill of lading, a stale bill of lading, and a claused bill of lading. An inland bill of lading is often the first transportation document issued for an international shipment and is used to transport goods over land via rail, road, or inland waterway, to the point at which the exporter's international carrier can place it on a ship. An inland bill of lading is a contract signed between a shipper and a transportation company (carrier) for the overland transportation of goods. If an inland bill of lading is non-negotiable, it may only be delivered to the named consignee, but if it is negotiable, then the carrier in possession of the bill of lading may re-

Inland Bill of Lading

Invisible supply is the unknown amount of some commodity that serves as the underlying to a derivatives contract.

Invisible supply refers to an unknown amount of physical stock of a commodity that will eventually be available for delivery upon settlement of a futures contract. Visible supply stands in contrast to invisible supply, which refers to an unknown or unquantifiable amount of physical stock of a commodity that will eventually be available for delivery upon settlement of a futures contract. Invisible supply is the physical stock of a commodity that will eventually be available for delivery upon settlement of a futures contract, but which is not yet accountable in the supply chain. As the market prices are determined by the laws of supply and demand, the invisible supply speaks to the future physical delivery of items such as wheat or oil in theoretical terms, since it is not yet accounted for but is factored into futures contracts. Invisible supply refers to an unknown amount of physical stock of a commodity that will eventually be available for delivery upon settlement of a futures contract.

Invisible Supply

Itayose is a clearing method used by Japanese commodity exchanges to set prices; it is a form of auction market.

Itayose is a clearing method used by Japanese commodity exchanges to set prices. If the cumulative buy volume is larger than the cumulative sell volume at all such prices, the highest price; or, the price in Condition 5.
**Condition 5:** Either of the following prices: If the highest price of those that minimizes the surplus volume (limited to the lowest price among those where the surplus volume becomes selling on balance and the highest price among those where the surplus volume becomes buying on balance when the prices of selling on balance and buying on balance are included in the prices where the surplus volume is minimum), the highest price.
If there is a Reference Price\*2 between the lowest price and the highest price of those prices that minimizes the surplus volume, the Reference Price.
If the lowest price of those that minimizes the surplus volume is higher than a Reference Price, the lowest price. The following is excerpted from their website:
**Condition 1**: The price where bids and offers match within the range between one tick above the highest order price and one tick below the lowest order price\*1.
**Condition 2:** In the case where there are several prices that meet Condition 1, the price that maximizes the traded volume. **Condition 4:** In the case where there are several prices that meet Condition 1, the price will be either of the following: If the cumulative sell volume is larger than the cumulative buy volume at all such prices, the lowest price. A contract price determined by the Itayose method is the price that maximizes the traded volume and minimizes the untraded volume according to the price and time priority rule.

Itayose

The last trading day is the final day that a contract may trade or be closed out before the delivery of the underlying asset or cash settlement must occur.

The last trading day is the final day that a futures contract, or other derivatives with an expiry date, may trade or be closed out before the delivery of the underlying asset or cash settlement must occur. The last trading day is the final day that a futures contract, or other derivatives with an expiry date, may trade or be closed out before the delivery of the underlying asset or cash settlement must occur. Any contracts outstanding at the end of the last day trading day must be settled by delivery of the underlying physical asset, exchange of financial instruments, or by agreeing to a monetary settlement. Some popular futures and options exchanges in North America include:
Intercontinental Exchange (ICE)
Montreal Exchange
Chicago Board Options Exchange (CBOE)
The last trading day is important for investors to note as it allows them to close out of the contract before expiration. The last trading day is the final day that a futures contract can be traded or closed out.

Last Trading Day

A lock limit is a specified price movement determined by trading exchanges that if breached results in a lock on the trading instrument. 

A lock limit is a specified price movement determined by an exchange that, if breached results in a trading halt of that instrument beyond the lock limit price. For example, if the price is limit down, a big buyer could step in and buy from the sellers at the lock limit price, and then bid the price up to push the price away from the lock limit. A lock limit is a specified price movement determined by an exchange that, if breached results in a trading halt of that instrument beyond the lock limit price. The next day, another lock limit price would be instituted, and trading can resume up/down to the next lock limit price. The limit stays at the expanded rate if the price goes limit up/down again, but contracts back to 20 if the expanded lock limit isn't hit.

Lock Limit

A minimum price contract us a derivative for physical delivery that sets a minimum guaranteed price, commonly used in agricultural commodities markets.

A minimum price contract is a forward contract that guarantees the seller a minimum price at delivery. A minimum price contract has language that specifies the delivery details, including the precise quantity and quality of the commodity to be delivered, its minimum price, and what the delivery period for the specified underlying will be. One advantage to the seller is that a minimum price contract typically specifies a period during which the seller may opt to sell the product at a price above the set minimum to take advantage of higher market rates. A minimum price contract is a forward contract that guarantees the seller a minimum price at delivery. A minimum price contract will specify the exact quantity, minimum price, and delivery period for the specified underlying commodity.

Minimum Price Contract

A non-commercial trader is a trader that uses the futures markets primarily for speculative purposes.

A non-commercial trader is defined by the Commodity Futures Trading Commission (CFTC) as someone who has no business activities related to a particular commodity in which they might have a position in the futures or options markets.﻿﻿ In other words, non-commercial traders are not looking to take delivery of a commodity or to hedge costs related to a commodity-related business. A non-commercial trader is defined by the Commodity Futures Trading Commission (CFTC) as someone who has no business activities related to a particular commodity in which they might have a position in the futures or options markets.﻿﻿ In other words, non-commercial traders are not looking to take delivery of a commodity or to hedge costs related to a commodity-related business. Moreover, because non-commercial traders tend to take the opposite positions of commercial traders, they also play an important role in providing the liquidity required to keep the futures market running. Futures prices tend to positively correlate with the positions of non-commercial traders, which can be seen in the CFTC's COT report: a weekly publication that shows the open interest and positions of different types of traders. This is another reason why the positions of non-commercial traders are seen as purer pricing signals than those of commercial traders.

Non-Commercial Trader

An outright futures position is an unhedged futures trade that is taken on its own and is not part of a larger or more complex trade.

An outright futures position is an unhedged futures trade that is taken on its own and is not part of a larger or more complex trade. If a hedge or offsetting position is added to an outright position, then it is no longer an outright position, but rather a hedged or partially-hedged position. An outright position exposes the trader to greater risk than a hedged position, although the outright position has theoretically greater profit potential. An outright futures position is a single directional bet position on a futures contract and is not part of a larger or more complex strategy. To reduce risk, the investor may choose to purchase a protective offsetting option, an offsetting position in the futures' underlying security, or an opposite position in a related market.

Outright Futures Position

"Spot commodity” refers to a commodity that is being sold with the intention of being delivered to the buyer either presently or within a few days.

U.S. Gulf Coast Kerosene-Type Jet Fuel Spot Price FOB

In finance, the term “spot commodity” refers to a commodity that is being sold with the intention of being delivered to the buyer fairly immediately—either presently or within only a few days. Since the value of a commodity futures contract is based on the value of its underlying commodity, the price of a given futures contract will trend toward the spot price of that commodity as the futures contract approaches its settlement date. The price of the futures contracts would then reflect not only the spot price of the commodity today but also the anticipated future direction of spot prices. As an example for basis in futures contracts, assume the spot price for crude oil is $50 per barrel and the futures price for crude oil deliverable in two months' time is $54. For example, a speculator who purchased coffee bean futures contracts might close out that position by selling those contracts to a commercial buyer in the spot market once that futures contract has reached its settlement date.

Spot Commodity

The spot delivery month, also known as nearby month or front month, is the month of the earliest expiring futures contracts for a given commodity.

In the commodities futures markets, the spot delivery month is the earliest possible month in which the commodity underlying the futures contract will be deliverable. In the commodities futures markets, the spot delivery month is the earliest possible month in which the commodity underlying the futures contract will be deliverable. The spot delivery month is the most important month in any commodity futures market because it is used to determine the spot price of that commodity. The spot delivery month is the next earliest month in which a commodity futures contract is eligible for delivery. The opposite of the spot delivery month is the back month, which refers to the latest month in which the commodity can be delivered based on current trading.

Spot Delivery Month

A terminal elevator is used to transfer large amounts of grain to trucks, rail cars, barges, and ships for transport.

A terminal elevator is a location for the bulk physical transfer of agricultural commodities. There are several types of terminal elevators, including grain elevators, primary elevators, process elevators, transfer elevators, and standard terminal elevators. Grain elevators, primary elevators, process elevators, transfer elevators, and standard terminal elevators are some examples of terminal elevators. Basis trading is a strategy used by terminal elevators (as well as some agricultural producers) looking to take advantage of favorable basis differentials by exploiting the difference between the cash (spot) and futures prices of an agricultural commodity. When elevators make commitments to buy corn from farmers on the local market, elevators will also sell futures close to the cash delivery date to hedge themselves.

Terminal Elevator

Visible supply is the amount of something that is in transit or available for sale.

Visible supply is the amount of a good or commodity that is currently being stored or transported that is available to be bought or sold. In the municipal bond markets, the 30 day visible supply refers to the total par value (face value) of all new issue municipal bonds that are expected to be coming to market in the next 30 days. An increase in the visible supply of bonds is bearish for prices as more bonds will increase the supply of new debt. Visible supply stands in contrast to invisible supply, which refers to an unknown or unquantifiable amount of physical stock of a commodity that will eventually be available for delivery upon settlement of a futures contract. Future supply, or supply which is currently in processing or preparation, is said to be part of the invisible supply, since it cannot (yet) be counted and accounted for.

Visible Supply

A warehouse receipt is a type of documentation used in the futures markets to guarantee the quantity and quality of a particular commodity being stored within an approved facility.

Warehouse Receipts vs. Shipping Certificates

A warehouse receipt is a type of documentation used in the futures markets to guarantee the quantity and quality of a particular commodity being stored within an approved facility. However, futures also have quality standards that must be met and warehouse receipts play a role in the inventory and delivery process of the underlying commodity for the contract. The warehouse also provides the inventory management services for the futures exchange and ensures that any commodities delivered to the warehouse meet the strict specifications, including having the proper certifications. Commodities need to meet specific quality standards in order to be traded as a futures contract, and the warehouse receipts play a role in verifying that the necessary requirements have been met. Sometimes, instead of the physical delivery of the actual commodities backing a contract, warehouse receipts can be used to settle futures contracts.

Futures & Commodities Trading

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