Features of futures trading: Is there cash delivery?

Futures trading is a kind of financial derivatives trading, characterized by the fact that the subject matter is the future spot, and the price of the contract transaction is the spot price when the futures contract is expected to expire at the current time, and the profit or loss is made through the price difference. However, futures trading is very different from spot trading, mainly in terms of trading methods, delivery methods, and leverage effects.

In futures trading, investors can earn income corresponding to the rise and fall of the underlying price by investing in futures contracts. However, futures contracts do not implement T+0 instant transactions like stock or securities transactions, and generally have a delivery period for a period of time.

Regarding the characteristics of futures trading, one of the important issues is the delivery method. According to different futures trading systems, the delivery methods are also slightly different. There are mainly two modes of physical delivery and cash delivery.

Physical delivery means that on the expiry date of the contract, the buyer and the seller must deliver the actual subject matter to the buyer in accordance with the delivery place and method agreed in the contract. For example, when a crude oil futures contract expires, the seller must provide the buyer with the actual crude oil and deliver it according to the quality and delivery time specified in the contract. In physical delivery, buyers and sellers of contract transactions must have a high degree of physical delivery capabilities, including logistics, warehousing and transportation.

Cash delivery is to settle the price difference between the buyer and the seller when the contract expires, instead of completing the delivery in physical form, that is to say, the subject matter of delivery is not the actual commodity, but cash. Because cash delivery has lower risks and costs than physical delivery, most futures contracts in the domestic futures market are settled in cash.

However, there are also some futures contracts that are delivered in a practical way of physical delivery. These contracts are more used in products that require actual delivery, such as food, non-ferrous metals, and chemicals. At the same time, in order to ensure the physical delivery of the contract, shipping, warehousing and other related industries have also assumed important responsibilities.YSHX

So, what are the advantages and disadvantages of cash delivery and physical delivery? Cash delivery solves a series of problems in physical delivery such as logistics, warehousing, and transportation. In commodities, stock indexes, currencies and other futures varieties, most of them are completed in the form of cash delivery. Moreover, the cost savings of cash delivery allows more investors to enter the futures market for transactions.yunshfx

However, it is worth noting that cash delivery also has its disadvantages. Although cash delivery avoids the risk of physical delivery, it is also prone to market risks such as fraud and “waterfall” limit-down. In addition, cash delivery may also cause the price to become a one-way prediction, rather than a game on Wall Street, because no matter whether the position is long or short, the physical delivery can be avoided by rolling the contract, which brings more risks and easily leads to market prices. Foam.Yun Shang Hui Xin

Generally speaking, compared with other financial trading methods, the trading characteristics of futures trading are suitable for investors who are more daring to take risks and have more trading experience. Therefore, when choosing a delivery method, investors need to make judgments based on their trading purposes, selected commodities, and their own delivery capabilities, and choose a delivery method that is more suitable for them between physical delivery and cash delivery.Yun Shang Hui Xin Limited

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