CHAPTER 4

Spot, Forward and Futures Markets

How commodities are traded and settled

Opening question

“When the news says oil is at USD 80, which price exactly is that?”

In this chapter

The spot, forward and futures markets, and which price the news quotes
How physical prices are set as a premium or discount to a benchmark
How to read a futures contract specification
Margin, daily settlement and leverage, with a worked example on gold
Physical delivery, cash settlement and the last trading days
Convergence and basis: how futures stay tied to physical prices
Hedgers, speculators and arbitrageurs
How Vietnamese firms and investors reach the futures markets

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This chapter is in the full book

Chapter 1 is free to read online. The full text of chapter 4 — with its tables, figures, worked examples and practice lab — is available in the complete edition of Commodity Investing: From Theory to Practice (Volume 2, NXW Investment Library).

Read Chapter 1 free Get the full book — contact@nxw.vn

Sections of this chapter

4.1 Three markets, three prices

4.2 The spot market and physical premiums

4.3 Forward contracts

4.4 Reading a futures specification

4.5 Margin and daily settlement

4.6 Leverage and its dangers

4.7 Physical delivery or cash settlement

4.8 Convergence and basis

4.9 Who trades: hedgers, speculators and arbitrageurs

4.10 Trading futures from Vietnam

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