Undestanding Commodity Futures and Option Contracts

A futures commodities contract between two parties is a legal agreement to buy or sell a particular financial commodity in the future for which the exchange, quantity and price are predefined. The two parties will also agree on a specific date and time in the future to make this transaction, which is called as the ‘settlement date’. An option contract between two parties is a legal agreement that bestows the buyer, who pays the ‘premium’ or the market price within a particular time period, the right and not the obligation to exercise his option.

A buyer can exercise the option when he has signed a futures contract agreeing with a particular price called ‘strike price’ or the options contract can give the right to buy or sell the commodity directly. In the United States, an individual or firm has to trade on your behalf the futures contracts and options on futures contracts in the exchange. This individual or firm has to be registered with the Commodity Futures Trading Commission.

Related posts:

1. Guidelines to Trade in Forex and Commodities Futures and Options
2. Classifications of Forex Trading Accounts

This entry was posted on Monday, April 13th, 2009 at 3:22 pm and is filed under Commodities, Currencies, Futures. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.