Commodity Trading
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Transactions on the commodity exchanges fall
into two broad categories: cash contracts
and futures contracts. Accordingly, the
commodity exchange may be a cash market or a
futures market, or may combine both. The
cash contracts for the purchase of
commodities are those which call for payment
of the full contract price, in cash, on
delivery. Such contracts are also referred
to as physical contracts, in the sense that
they deal in actual or physical products.
The cash or physical contracts may be
sub-divided into two sub-classes: spot
contracts and forward contracts. Spot transactions are those cash contracts which involve the payment by the buyer and the delivery of the specified grade of goods by the seller immediately, or within a short time. These contracts relate to the purchase or sale of commodities on the spot. The essence of such contracts is the ready delivery and acceptance of the delivery of the goods sold. Forward dealings are those cash contracts made in the cash or physical market, which call for the delivery of goods and payment of the price after a specified period, on a fixed date. |