Two beginner questions about futures:

RE: schizo

I think I understand what you're saying.

So, I'm a farmer and to cover my costs and make a decent profit, I'd want to sell my wheat at $7 per bushel. So, I participate in the futures market and short at $7.

Now, say the price of wheat is down to $5 per bushel when it's time to bring my wheat to the silo. Normally, I'd be screwed because I sold the wheat at a loss, selling for $2 per bushel less than I needed.

However, because I had shorted wheat at $7 per bushel in the futures market, I made up that $2 per bushel.

Thanks, Schizo. ;)
 
Quote from TradeSparrow:

RE: schizo

I think I understand what you're saying.

So, I'm a farmer
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A farmer will hire a hedge broker using a referral from his banker. He seeks consutlant from his hedge broker and banker.

Comprende Amigo? Go have some mojitos!
 
Quote from TradeSparrow:

Thanks. I just bought them both electronically and I'm reading the first one now. :cool:
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They should clear things up for you. It's better to get the information straight from the source.

I didn't have time to write more earlier. From what I can tell, your thinking is a little off.
What you are describing is more like an option or warrant, both of which has a strike price.

Futures track the underlying. A delivery date, method and quantity is set, but it has no strike price.

E.g.:
If you are a farmer and think prices of the commodity you produce will decline before harvest, you sell futures to hedge the risk. By doing so you lock in a price. . You make money on the futures and lose on the spot price, or vice versa...
The price of the futures at the moment you sell - is the amount you get. You don't set the price yourself.

You could also hedge using options or a combination of both, but that is a different subject..
 
Quote from schizo:
Now further suppose you held the same contract until the expiration, which at that time ZW settled at $9.37. You obviously lost $2, but the good news is you can now sell your grain at the spot market for $9.37. [/B]
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Wheat is settled by physical delivery, not in cash:http://www.cmegroup.com/rulebook/CBOT/II/14/. That's why we don't hold long positions after first notice day. If you have sold a contract of wheat, you normally notify during this period the longest holding buyer that you will deliver the 5000 bushels of wheat to him. If you hold it to expiration, you either have to deliver it in the 2 days after expiration or done an exchange of futures for related position.

There is no cash made or lost on the futures position and no need to go sell it on the spot market. That's what would have happened if you had closed your short position before expiration. You have just sold your wheat for 7.37$.That's all.
 
I don't know what I am smoking lately( nothing which is even scarier)...LOL. Forget about the 7.37$.

"713.D. Sellers' Invoices to Buyers

Upon receipt of the names of the buyers obligated to accept delivery from him and a description of each commodity tendered by him which was assigned by the Clearing House to each such buyer, the seller shall prepare invoices addressed to its assigned buyers describing the commodity to be delivered to each such buyer and, if applicable, the delivery location. Such invoices shall show the amount which buyers must pay to sellers in settlement of the actual deliveries, based on the delivery prices established by the Clearing House for that purpose, adjusted for applicable premiums, discounts, storage charges, premium charges, premium for FOB conveyance, quantity variations and other items for which provision is made in these Rules relating to contracts. The responsibility for storage charges shall remain the obligation of the seller until such time as the delivery instrument is presented to the buyer and payment is made in conformity with the rules concerning payment. Such invoices shall be in the form designated by the Exchange.
Such invoices shall be delivered to the Clearing House by 10:00 a.m. for those commodities utilizing the electronic delivery system via the Clearing House’s on-line system, or 4:00 p.m. for other commodities on notice day. However, on the last notice day in the delivery month when a que intent for commodities that do not use the electronic delivery system has been delivered to the Clearing House, invoices for said delivery may be delivered to the Clearing House until 10:00 a.m. on the last delivery day of the delivery month.
Upon receipt of such invoices, the Clearing House shall promptly make them available to buyers to whom they are addressed.
Financial instruments futures contracts will follow the invoicing procedures that are prescribed in the respective contract's invoicing regulation."

:D
 
Schizo was right for futures( except for the delivery part ). I was reasoning on a forward basis:

"What are the Differences between a Futures and a Forward Contract?

Although a Futures Contract is similar to a Forward Contract in that both are agreements to trade on a set future date, there are some significant differences.
Fututres contracts are highly standardized, while each Forward contract is personalized and unique.
Futures are settled at the end on the last trading date of the contract with the settlement price; whereas, the Forwards are settled at the start with a forward price.
The profit or loss on a Futures position is exchanged in cash every day. With the Forwards contract, the profit or loss is realized only at the time of settlement so the credit exposure can keep increasing.
The Futures contract does not specify to whom the delivery of a physical asset must be made; in a Forwards contract it is clearly specified who recieves the delivery.
Futures are traded on an exchange, while Forwards are traded over-the-counter.
"
 
Interesting. Well, thanks everyone for the quick replies to these questions. The people on this forum are invaluable in the help they provide. Thanks. :p
 
Quote from TradeSparrow:

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Sale Date: 9-6-11 Number of cattle sold: 374

Compared to Last week:
Cows: Steady
Bulls: Steady
Steers: Steady (Except weights under 400. 1-3 Lower) Heifers: Steady (Except weights under 400. 1-3 Lower)

(All prices per cwt unless otherwise noted)
Steers: (Grade 1’s ) (Gaunt to medium fill)
200-299 lbs $130.00 to $141.00 $135.00 avg
300-399 lbs $130.00 to $142.50 $136.00 avg
400-499 lbs $122.00 to $137.50 $129.00 avg
500-599 lbs $120.00 to $126.50 $123.00 avg
600-699 lbs $117.00 to $124.00 $120.00 avg
700-799 lbs $112.00 to $115.50 $113.00 avg

Heifers: (Grade 1’s) (Gaunt to medium fill)
200-299 lbs $120.00 to $120.00 $120.00 avg
300-399 lbs $118.00 to $127.00 $122.00 avg
400-499 lbs $110.00 to $118.50 $114.00 avg
500-599 lbs $105.00 to $117.50 $111.00 avg
600-699 lbs $104.00 to $119.50 $111.00 avg


can figure this out?
 
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