FNCE30007 Chapter Notes - Chapter 2: Arbitrage, Futures Contract, Systemic Risk
29 Jun 2020
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Contract is referred to by its delivery month (period of time during which delivery can be made) Trading usually ceases some time during the delivery period. Majority of futures contracts do not lead to delivery. Most investors close out their positions prior to the delivery period as it is often inconvenient or expensive. Total gain or loss is determine by the change in the futures price. Possibility of final delivery ties the futures price to the spot price. Contract must specify the asset, the contract size, where delivery will be made and when delivery will be made. Alternatives may be specified for the grade of the asset or the delivery locations, decided by the short position. Exchange stipulates the grade or grades that are acceptable. The amount of the asset to be delivered under one contract. Too large - investors who wish to hedge small exposures or take small speculative positions will be unable to use the exchange.
