Page 21 - Futures Money Machine-Study Session #3

Understanding Futures

Expiration/Delivery Dates…

Taking Delivery refers to the contract holder receiving the underlying product at the contract’s expiration
date.

Futures exchanges work with industry to develop standardized quantities, qualities, sizes, grades and
locations for delivery of a physical commodity.

While many commodities have different characteristics, the delivery process often includes premiums
and discounts for varying grades and distribution points for specific raw materials. The exchange
designates warehouse and delivery locations for many commodities. The exchange also sets the rules
and regulations for the delivery period which can vary depending upon the particular product.

When delivery takes place, a warrant or bearer receipt that represents a certain quantity and quality of a
commodity in a specific location changes hands from the seller to the buyer upon which time full value
payment occurs. The buyer has the right to remove the commodity from the warehouse at their option.
Often, a purchaser will leave the raw material product at the storage location and pay a periodic storage
fee. Exchanges also set fees for many aspects of the delivery process.

As a futures contract approaches the delivery date, the price of the futures month will gravitate towards
the price of the actual physical or cash market price.