Commodity Futures Contract

What is a commodity futures contract?

A commodity futures contract is a standardized, legally binding agreement to buy or sell a certain amount of a commodity at a set price on a future date.

The two parties to the contract are the buyer and the seller.

The buyer agrees to buy the commodity at the specified price on the specified date, and the seller agrees to sell the commodity at the specified price on the specified date.

Why are commodity futures contracts used?

Commodity futures contracts are used for a variety of purposes, including:

• Hedging:

Producers and consumers of commodities use futures contracts to hedge against price risk.

• Speculation:

Traders use futures contracts to speculate on the future price of commodities.

• Arbitrage:

Traders use futures contracts to arbitrage price differences between different markets.

How are commodity futures contracts traded?

Commodity futures contracts are traded on futures exchanges.

The most common futures exchanges are the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), and the New York Mercantile Exchange (NYMEX).

When a trader wants to buy or sell a futures contract, they must place an order with a broker.

The broker will then execute the order on the futures exchange.