Delivery Price Explained: Understanding Costs in 2025
Discover the concept of delivery price in futures and forward contracts, how it operates, and its significance in commodity trading today.
What Is Delivery Price?
The delivery price refers to the predetermined amount agreed upon by two parties for the transfer of an underlying commodity. This price is established at the inception of a futures or forward contract and remains fixed throughout the contract's term. It represents the value at which one party commits to deliver the commodity, while the counterparty agrees to accept it.
How Delivery Price Works in Trading
In futures and forward contracts, the delivery price is locked in when the contract is signed, providing certainty regardless of market fluctuations. While the forward price may vary over time, the delivery price stays constant. Often, actual physical delivery of the asset is avoided by offsetting positions or transferring delivery instruments like warehouse receipts. If physical delivery occurs, associated costs can influence the effective delivery price.
Why Delivery Price Matters
The delivery price is crucial because it anchors the contract's value from day one, unaffected by daily market changes. This contrasts with spot prices or prices for entering new contracts, which fluctuate continuously. Futures contracts are marked-to-market daily, adjusting gains and losses based on settlement prices, but the delivery price remains a fixed reference point, ensuring clarity and stability in trading agreements.
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