Is it practical to take actual delivery on a futures contract, and what is the process?
Here's a good link that can answer your question: How to take delivery of a futures contract The relevant part states: Prior to delivery day, they inform customers who have open long positions that they must either close out the position or prepare to take delivery and pay the full value of the underlying contract. By the same token traders with short positions are informed that they must close out their trades or prepare to deliver the underlying commodity. In this case, they must have the required quantity and quality of the deliverable commodity on hand.   On the few occasions that a buyer accepts delivery against his futures contract, he is usually not given the underlying commodity itself (except in the case of financials), but rather a receipt entitling him to fetch the hogs, wheat, or corn from warehouses or distribution points. I hope this helps. Good luck! Not all futures contracts are deliverable.  Some futures are specified as cash settlement only. In the case of deliverable contracts, part of the specification of a futures contract will be the delivery locations.  As per my answer to your previous question, please see the CME Rulebook for details of delivery points for the deliverable futures contracts traded on CME, CBOT, NYMEX, and COMEX. Assuming your agreement with your broker allows you to exercise your right to take delivery, your broker will facilitate your delivery.  You will be required to pay the contracted amount (your buy price x contract size x number of lots), as well as a delivery fee, insurance, and warehousing fees.  In addition, your broker may charge you a fee for facilitating the delivery. You will be required to continue to pay insurance and warehousing fees so long as your holding of the underlying commodity is held in the exchange's designated warehouse. If you wish to take delivery yourself by having the commodity removed from the warehouse and delivered to you personally, then you will need to arrange this delivery yourself. Warehouse/delivery points obviously vary according the contract being exercised. See the CME Rulebook for available delivery points.  Some exchanges are more accommodating than others. The practicality of taking delivery very much depends on your personal circumstances.  An investment bank taking delivery of treasury bonds would be more practical than an individual investor taking delivery of treasury bonds.  This is because the individual investor would be required to deliver the bonds to a brokerage in order to sell them.  In the case of non-financial futures deliveries, it is hard to imagine any circumstance where an individual taking delivery would be practical. "As mentioned in other answers, you find out by reading the Rulebook for that commodity and exchange.  I'll quote a couple of random passages to show how they vary: For CME (Chicago Mercantile Exchange) Random Length Lumber Futures, the delivery is ornate: Seller shall give his Notice of Intent to Deliver to the Clearing   House prior to 12:00 noon (on any Business Day after termination of   trading in the contract month. 20103.D. Seller's Duties If the buyer's designated destination is east of the western boundaries of North Dakota, South Dakota, Nebraska,   Kansas, Texas and Oklahoma, and the western boundary of Manitoba,   Canada, the seller shall follow the buyer's shipping instructions   within seven (7) Business Days after receipt of such instructions. In   addition, the seller shall prepay the actual freight charges and bill   the buyer, through the Clearing House, the lowest published freight   rate for 73-foot railcars from Prince George, British Columbia to the   buyer's destination. If the lowest published freight rate from Prince   George, British Columbia to buyer's destination is a rate per one   hundred pounds, the seller shall bill the buyer on the weight basis of   1,650 pounds per thousand board feet. The term ""lowest published   freight rate"" refers only to the lowest published ""general through   rate"" and not to rates published in any other rate class. If, however, the buyer’s destination is outside of the aforementioned   area, the seller shall follow the same procedures except that the   seller shall have the right to change the point of origin and/or   originating carrier within 2 Business Days after receipt of buyer’s   original shipping instructions. If a change of origin and/or   originating carrier is made, the seller shall then follow the buyer's   revised instructions within seven (7) Business Days after receipt of   such instructions. If the freight rate to the buyer's destination is not published, the   freight charge shall be negotiated between the buyer and seller in   accordance with industry practice. Any additional freight charges resulting from diversion by the buyer   in excess of the actual charges for shipment to the destination   specified in the shipping instructions submitted to the Clearing House   are the responsibility of the buyer. Any reduction in freight charges   that may result from a diversion is not subject to billing adjustment   through the Clearing House. Any applicable surcharges noted by the   rail carrier shall be considered as part of the freight rate and can   be billed to the buyer through the CME Clearing House. If within two (2) Business Days of the receipt of the Notice of Intent   the buyer has not designated a destination, or if during that time the   buyer and seller fail to agree on a negotiated freight charge, the   seller shall treat the destination as Chicago, Illinois. If the buyer   does not designate a carrier or routing, the seller shall select same   according to normal trade practices. To complete delivery, the seller   must deposit with the Clearing House a Delivery Notice, a uniform   straight bill of lading (or a copy thereof) and written information   specifying grade, a tally of pieces of each length, board feet by   sizes and total board feet. The foregoing documents must be received   by the Clearing House postmarked within fourteen (14) Business Days of   the date of receipt of shipping instructions. In addition, within one (1) Business Day after acceptance by the   railroad, the Clearing House must receive information (via a telephone   call, facsimile or electronic transmission) from the seller giving the   car number, piece count by length, unit size, total board footage and   date of acceptance. The ￼date of acceptance by the railroad is the   date of the bill of lading, signed and/or stamped by the originating   carrier, except when determined otherwise by the Clearing House. For some commodities you can't get physical delivery (for instance, Cheese futures won't deliver piles of cheese to your door, for reasons that may be obvious) 6003.A. Final Settlement There shall be no delivery of cheese in settlement of this contract.   All contracts open as of the termination of trading shall be cash   settled based upon the USDA monthly weighted average price in the U.S.   for cheese. The reported USDA monthly weighted average price for   cheese uses both 40 pound cheddar block and 500 pound barrel prices. CME gold futures will deliver to a licensed depository, so you would have to arrange for delivery from the depository (they'll issue you a warrant), assuming you really want a 100 troy oz. bar of gold: CONTRACT SPECIFICATIONS The contract for delivery on futures contracts shall be one hundred   (100) troy ounces of gold with a weight tolerance of 5% either higher   or lower. Gold delivered under this contract shall assay to a minimum   of 995 fineness and must be a brand approved by the Exchange. Gold meeting all of the following specifications shall be deliverable   in satisfaction of futures contract delivery obligations under this   rule: Either one (1) 100 troy ounce bar, or three (3) one (1) kilo bars. Gold must consist of one or more of the Exchange’s Brand marks, as provided in Chapter 7, current at the date of the delivery of   contract. Each bar of Eligible gold must have the weight, fineness, bar number, and brand mark clearly incised on the bar. The weight may be   in troy ounces or grams. If the weight is in grams, it must be   converted to troy ounces for documentation purposes by dividing the   weight in grams by 31.1035 and rounding to the nearest one hundredth   of a troy ounce. All documentation must illustrate the weight in troy   ounces. Each Warrant issued by a Depository shall reference the serial number and name of the Producer of each bar. Each assay certificate issued by an Assayer shall certify that each bar of gold in the lot assays no less than 995 fineness and weight of   each bar and the name of the Producer that produced each bar. Gold must be delivered to a Depository by a Carrier as follows: a. directly from a Producer; b. directly from an Assayer, provided that such gold is accompanied by   an assay certificate of such Assayer; or c. directly from another Depository; provided, that such gold was   placed in such other Depository pursuant to paragraphs (a) or (b)   above."
"As Dilip has pointed out in the comment, investing in commodities is to either delivery or Buy. Lets say you entered into buying ""X"" quantities of Soybeans in November, contract is entered into May. In November, if the price is higher than what you purchased for, you can easily sell this, and make money. If in November, the price is lower than your contract price, you have an option to sell it at loss. If you don't want to sell it at loss, you are supposed to take the physical shipment [arrange for your own transport] and store it in warehouse. Although there are companies that will allow you to lease their warehouse, it very soon becomes more loss making proposition. By doing this you can HOLD onto as long as you want [or as long as the good survive and don't rot] It makes sense for a large wholesaler to enter into Buy contracts as he would be like to get known prices for at least half the stock he needs. Similarly large farmers / co-operative societies need to enter into Sell contracts so that they are safeguarded against price fluctuations." Yahoo finance does in fact have futures quotes.  But I've found them difficult to search for because you also have to know the expiration codes for the contract to find them. S&P 500 Emini quote for June 2012 "My take on this is that with any short-selling contract you are engaging in, at a specified time in the future you will need to transfer ownership of the item(s) you sold to the buyer. Whether you own the item(s) or in your case you will buy your friend's used  car in the meantime (or dig enough gold out of the ground - in the case of hedging a commodity exposure) is a matter of ""trust"". Hence there is normally some form of margin or credit-line involved to cover for you failing to deliver on expiry." "As far as I understand, OP seems to be literally asking: ""why, regarding the various contracts on various exchanges (CBE, etc), is it that in some cases they are 'cash settled' and in some 'physically settled' -?"" The answer is only that ""the exchange in question happens to offer it that way."" Note that it's utterly commonplace for contracts to be settled out physically, and happens in the billions as a daily matter.  Conversely zillions in ""cash settled"" contracts play out each day.  Both are totally commonplace. Different businesses or entities or traders would use the two ""varieties"" for sundry reasons. The different exchanges offer the different varieties, ultimately I guess because they happen to think that niche will be profitable.  There's no ""galactic council"" or something that enforces which mode of settlement is available on a given offering - ! Recall that ""a given futures contracts market"" is nothing more than a product offered by a certain exchange company (just like Burger King sells different products). I believe in another aspect of the question, OP is asking basically:  ""Why is there not, a futures contract, of the mini or micro variety for extremely small amounts, of currency futures, which, is 'physically' settled rather than cash settled ..?"" If that's the question the answer is just ""whatever, nobody's done it yet"".  (Or, it may well exist.  But it seems extremely unlikely?  ""physically"" settled currencies futures are for entities operating in the zillions.) Sorry if the question was misunderstood." They're batched typically and about 30-90 days out typically, though the speed is routinely increasing the last few years. The flow depends from payment processor to payment processor. Generally, the cheaper the payment processing the longer the delay.  The future of this stuff is blockchain if you'd like to look at that  http://www.goldmansachs.com/our-thinking/pages/blockchain/ "So, the term ""ready market"" simply means that a market exists in which there are legitimate buy/sell offers, meaning there are investors willing to own or trade in the security. A ""spot market"" means that the security/commodity is being delivered immediately, rather at some predetermined date in the future (hence the term ""futures market"").  So if you buy oil on the spot market, you'd better be prepared to take immediate delivery, where as when you buy a futures contract, the transaction doesn't happen until some later date.  The advantage for futures contract sellers is the ability to lock in the price of what they're selling as a hedge against the possibility of a price drop between now and when they can/will deliver the commodity.  In other words, a farmer can pre-sell his grain at a set price for some future delivery date so he can know what he's going to get regardless of the price of grain at the time he delivers it.  The downside to the farmer is that if grain prices rise higher than what he sold them for as futures contracts then he loses that additional money.  That's the advantage to the buyer, who expects the price to rise so he can resell what he bought from the farmer at a profit. When you trade on margin, you're basically borrowing the money to make a trade, whether you're trading long (buying) or short (selling) on a security.  It isn't uncommon for traders to pledge securities they already own as collateral for a margin account, and if they are unable to cover a margin call then those securities can be liquidated or confiscated to satisfy the debt.  There still may even be a balance due after such a liquidation if the pledged securities don't cover the margin call. Most of the time you pay a fee (or interest rate) on whatever you borrow on margin, just like taking out a bank loan, so if you're going to trade on margin, you have to include those costs in your calculations as to what you need to earn from your investment to make a profit. When I short trade, I'm selling something I don't own in the expectation I can buy it back later at a lower price and keep the difference.  For instance, if I think Apple shares are going to take a steep drop at some point soon, I can short them.  So imagine I short-sell 1000 shares of AAPL at the current price of $112.  That means my brokerage account is credited with the proceeds of the sale ($112,000), and I now owe my broker 1000 shares of AAPL stock.  If the stock drops to $100 and I ""cover my short"" (buy the shares back to repay the 1000 I borrowed) then I pay $100,000 for them and give them to my broker.  I keep the difference ($12,000) between what I sold them for and what I paid to buy them back, minus any brokerage fees and fees the broker may charge me for short-selling. In conclusion, a margin trade is using someone else's money to make a trade, whether it's to buy more or to sell short.  A short trade is selling shares I don't even own because I think I can make money in the process. I hope this helps." "Well, futures don't have a ""strike"" like an option - the price represents how much you're obligated to buy/sell the index for at a specified date in the future.  You are correct that there's no cost to enter a contract (though there may be broker fees and margin payments).  Any difference between the contract price and the price of the index at settlement is what is exchanged at settlement.   It's analogous to the bid/ask on a stock - the bid price represents the price at which someone is willing to ""buy"" a futures contract (meaning enter into a long position) and the ask is how much someone is willing to ""sell"" a contract. So if you want to take a long position on S&P500 mini futures you'd have to enter in at the ""ask"" price.  If the index is above your contract price on the future expiry date you'll make a profit; if it is below the contract price you'll take a loss." "Consider the futures market. Traders buy and sell gold futures, but very few contracts, relatively speaking, result in delivery. The contracts are sold, and ""Open interest"" dwindles to near zero most months as the final date approaches. The seller buys back his short position, the buyer sells off his longs.  When I own a call, and am 'winning,' say the option that cost me $1 is now worth $2, I'd rather sell that option for even $1.95 than to buy 100 shares of a $148 stock. The punchline is that very few option buyers actually hope to own the stock in the end. Just like the futures, open interest falls as expiration approaches." "With options you pay for a premium which relates to the expected (so-called ""implied"" volatility). With futures, there is no assumption about the volatility of an underlying stock. In general, when trading options you trade the direction and future expected volatility of an underlying while futures are directional trades only." It is possible but unlikely. Securities firms would prefer never to settle externally; rather, they prefer to wait until the liabilities can be netted.  They are forced to make and take payment in three business days. The reason why is because settlement is costly in the same way as any other business would prefer to build trade credit instead of taking or making payment rapidly. The only circumstance where a financial firm would wish to take full delivery is when a counterparty is no longer trusted to be solvent. Because the standard contract is for 125,000 euros.  http://www.cmegroup.com/trading/fx/g10/euro-fx_contractSpecs_futures.html You don't want to use Microsoft as an analogy. You want to use non financial commodities. Most are settled in cash, no delivery. But in the early 80's, the Hunt brothers caused a spectacular short squeeze by taking delivery sending the spot price to $50. And some businesses naturally do this, buying metal, grain, etc. no reason you can't actually get the current price of $US/Euro if you need that much. I just called options express, and apparently you need a margin account for futures and options, but you don't NEED margin to trade futures. I will have to debate the merits, but I think I may try playing with it once I build up my regular stock account. "How do financial derivatives like futures help in price discovery? From what I understand, the prices of futures are decided after the parties ""discover"" the price they think is appropriate for the underlying asset after some time. Wouldn't taking a future's price and then valuating an asset like a cart in front of a horse or the tail wagging the dog? Please link all that you want to and correct me everywhere." Not really practical... The real problem is getting the money into a form where you *can* invest it in something.  It's not like E\*Trade will let you FedEx them a briefcase of sequentially numbered hundreds and just credit your account, no questions asked.  That **is** the hard part. Personally the main disadvantages are perpetuation of the credit referencing system, which is massively abused and woefully under regulated, and encouraging people to think that it's ok to buy things you don't have the money to buy (either save up or question price/necessity).