contract is the obligation to buy or sell a commodity at a
pre-determined future date, at a price agreed today.
commodity may be a physical product, such as wheat or wool, or
financial product, based on interest rates or stock indices. The
quality and quantity of the product is fixed, with the price and
time to expiry the only variables. This allows market participants
to trade with each other on regulated exchanges.
used for both hedging and speculative purposes. Few market
participants actually deliver on the commodity; they usually trade
out of their position.
The ASX 24
wheat contract is for 50 tonnes of wheat. If you buy a wheat
contract today for delivery on a specified date in March
(March wheat), you are agreeing the price that will be paid on the
few market participants actually proceed to delivery, choosing to
trade out of their position before the delivery date. In this
example, you could sell at any time before the expiry date, exiting
your position. If prices go up, you make a profit (that is, the
difference between the buy and sell price). If prices go down, you
make a loss.
Alternatively you can enter into a contract to sell the
commodity at a certain price (regardless of whether you hold the
commodity), when you expect prices will fall.
Call 1800 502 025 today for more
information and to speak to a licensed Futures Adviser