Compared to cash contracts, which demand payment against the physical delivery of goods immediately or soon after a specified time period, a futures contract is a special kind of agreement made entirely under the rules of a commodity exchange, which may or may not call for the actual delivery of goods and payment in cash on a future date.
According to Emery, a futures contract can be defined as a contract for the future delivery of some kind of commodity without reference to specific lots, made under the rules of some commercial body, within a set form, in which the conditions as to unit of amount, the quality and time of delivery are stereotyped. Only the determination of the total amounts and the price is left open to the contracting individuals.
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These kinds of contracts are meant just for future settlement, though the precise date of the agreement is decided by reference to the wishes of the seller and the established rules of the commodity agreement.
Such agreements do not specify the particular grade of a commodity, but impliedly refer to a basic grade known as the contract grade, accepted as the typical grade for all futures deals.
The details in respect to the amount, the time of settlement, the quality and so forth are mentioned within the guidelines and regulations, and are common to all these contracts. The contracting individuals must decide upon the price at which the contract is to be settled, sometime in one of the trading months specified by the exchange.
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Futures agreements are made only inside the 'ring' of the commodity exchanges, and never ever outside of the exchanges. Only people in a commodity exchange can enter into such a deal.
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No outsider can become a party to a futures agreement. Such agreements can be made only in multiples of a fixed unit of trading. No such agreements may be made in fractions of these units.
People who are new to the trading game will save themselves a lot of time and distress if they immediately internalize one essential fact: attempt to forecast the future and you are bound to lose.
If you are a business owner looking to increase business capital through futures agreements, contact a financial adviser by searching: mergers companies or company go public.
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