Commodity Futures 101: Learn How to Trade Commodity Futures
Ken Trester, April 17, 2009
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Is a Futures Contract an Option?
An option contract is the right (not the obligation) to buy something at a future date, but a futures contract is an obligation to purchase or sell something at a future date. Therefore, a futures contract is not an option.
For example, when you buy a corn futures contract, you have bought that commodity (i.e., an entire 5,000 bushels of corn). However, you don't have to pay for it until the date of delivery. The only thing you have to pay for upfront is the good faith deposit.
In more formal terms, a commodity futures contract is simply a contract between a buyer and seller -- one agreeing to purchase a specified quantity of a commodity on a future date, the other agreeing to deliver at a price worked out today.
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