Most futures contracts assume that actual delivery of the commodity can take place to fulfill the contract. However, some futures contracts require cash settlement instead of delivery. Futures contracts can be terminated by an offsetting transaction (i.e., an equal and opposite transaction to the one that opened the position) executed at any time prior to the contract's expiration. The vast majority of futures contracts are terminated by offset or a final cash payment rather than by physical delivery.
Historical Perspective
Futures contracts for agricultural commodities have been traded in the United States since the nineteenth century and have been under federal regulation since the 1920s. Starting in the late 1970s, futures trading has expanded rapidly into many new markets, beyond the domain of traditional physical and agricultural commodities such as metals and grains. Futures and options are now offered on many energy commodities such as crude oil, gasoline, heating oil, natural gas, and electricity, as well as on a vast array of other commodities and financial instruments, including foreign currencies, government securities, and stock indices.
Terms and Conditions
A typical futures contract might call for the delivery of 1,000 barrels (42,000 U.S.
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