Delivery Date

What Is a Delivery Date?

A delivery date is the last date by which the underlying commodity for a futures or forward contract must be delivered for the terms of the contract to be satisfied. Most futures contracts are utilized as a hedge to reduce the risk of adverse price developments in a commodity and are closed out with an offsetting position (selling to offset a long position and buying to offset a short position) before the genuine delivery date.

Delivery Dates Explained

All futures and forward contracts have a delivery date whereupon the underlying commodity must be moved to the contract holder in the event that they hold the contract until maturity as opposed to offsetting it with a restricting contract.

As indicated by John Hull, creator of Options, Futures and Other Derivatives, a futures contract is alluded to by its delivery month. The exchange where the futures contract is traded must determine the exact period during the month when delivery can be made. For certain futures contracts, the delivery period is the whole month, while for others it is a specific date. The delivery months shift from one contract to another and are picked by the exchange to address the issues of market participants. At some random time, contracts for the most part trade for the nearest delivery month and a number of subsequent delivery months. The exchange determines while trading in a specific month's contract will start. Trading generally stops a couple of days before the last day on which delivery can be made.

The principal delivery months for certain commodities, similar to corn futures, are March, May, July, September, and December. These contracts are coded by the exchange with the end goal that the last two images indicate the month and year of the delivery date. For instance, a contract with a delivery date of March 2019 would have the code XXH9. Other month to month delivery images are June (M), September (U), and December (Z), trailed by a number that addresses the delivery year.

Delivery Date Differences for Futures and Forwards

Forward contracts contrast from futures contracts in light of the fact that forward contracts are not traded on a registered exchange. All things being equal, forward contracts trade in the over-the-counter market and fluctuate more than normalized futures contracts. Along these lines, the delivery date of a forward contract is subject to negotiation and can be tailored to the necessities of both the seller and buyer. Another important difference is that the underlying commodity of the forward contract will in general be delivered more frequently than with futures contracts. Futures contracts are utilized fundamentally to hedge price developments and are closed out prior to delivery. Forward contracts are all the more frequently utilized by commodity users and producers to eliminate price vulnerability while really taking delivery of the underlying commodity.