Futures and Options (5)

Futures Contract (2)

Hence when you buy a futures contract, it requires you to take delivery of the goods - or to make delivery if you sell the contract - unless your position is closed.

However most of the time, the delivery exchange doesn't take place and positions are closed out or resold before the expiry date.

This is because the main purpose of futures trading is not to buy or sell the physical goods or financial instruments but to manage the risk of price changes for hedgers; and for speculators, to profit from the changes.

As the market price of the futures goods fluctuates during the contract period, a difference arises between the contract price and the market price and so the futures contract shows a gain or loss in value.

Most traders, both the hedgers and speculators, will close out their contracts by taking an opposite position, when they feel the contract value has risen or fallen in their favour.