So both these Commodity traders have opposing outlook on the same Commodity (Gold) but for the same time period and they decide to go for a futures contract on this Gold Commodity as an underlying.
Futures Price - Say they both agree to trade this for $102 - this becomes the futures price. Sunny will now benefit, because he will get $101 from Bunny for a Commodity that is currently trading at $90 only. Also note that if this is an exchange traded Commodity future, then there can be margin requirements as well as daily settlement of margins.
In case this Commodity future trade is over the counter or OTC, then margin money requirements may not apply on daily basis, based on the mutual agreement.
In case of any futures contract defined on any underlying, the price of the underlying usually decides the price of its futures.
In case of Commodity futures, the price of the underlying Commodity will be the major factor in determining the Commodity futures prices. Other than that, the interest rate, risk premium, time to expiry and cost of carry are other factors which may have an influence on price of Commodity futures. The simple difference between a forward and a future contract is that forward contract is NOT through an exchange while future usually is on an exchange.
A client wishing to buy or sell futures or options telephones their broker who is a member of LIFFE. In simple terms, therefore, futures are contracts - legally binding agreements - to buy or sell 'something' in the future. In each case, the seller of an option earns the premium, which is the agreed price of the option, but may be called upon to sell (call option) or buy (put option) a futures contract should the buyer exercise the right to buy (call option) or sell (put option) a futures contract.
Usually, spot prices from any spot exchanges are used as underlying benchmark for commodity futures. OR, he may have purchased Gold long time back at cheap price (say $50), but instead of selling them at market price of $110, he is forced to sell it to Bunny at $101 (the agreed futures price).
Margin requirements on futures means both the parties assessing their positions at the end of each day and the loosing party providing margin money via the exchange to the winning party.
The broker contacts their booth on the LIFFE trading floor with the client’s instruction. The buyer of a LIFFE commodity call option acquires the right, but not the obligation, to buy a futures contract at a predetermined price on a given date. These futures can be exchange traded futures like those on Chicago Board of Trade (CME Group) CBOT, Chicago Mercantile Exchange CME or New York Mercantile Exchange NYMEX or can be OTC (Over the counter) between two parties on mutually agreed terms. Like any other futures contract, Commodity futures have an expiry date and the futures price. If at that end of the day, Bunny is in profit and Sunny is in loss, then Sunny needs to provide margin money to Bunny (via the exchange) to remain in the futures position).
The buyer of a Liffe commodity put option acquires the right, but not the obligation, to sell a futures contract at a predetermined price on a given date.
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