Futures Pricing, Carry, and Delivery

Futures pricing connects a cash-market asset today with a contract for settlement later. Spot Price establishes the current cash comparison, Cost of Carry explains how funding and ownership economics affect forward value, and the futures curve shows how prices differ across maturities.

Maintaining exposure introduces a second set of mechanics. A position can be rolled into a later contract, creating curve and execution effects, or it can enter the settlement process. Physically delivered contracts may require invoice funding and receipt of a delivery instrument, while cash-settled contracts end through a final cash calculation.

Use the parent Futures, Forwards, and Contracts page for the broader instrument map.

Key Terms in This Branch

How the Concepts Fit Together

1. Start with comparable spot and futures specifications.
2. Estimate net carry over the contract horizon.
3. Compare the theoretical relationship with the observed futures curve.
4. If exposure continues, model the actual contract roll and return attribution.
5. If a position remains open near expiration, confirm whether settlement is cash or physical.

Example

A processor expects to buy a commodity in three months. The local cash quote is not automatically comparable with the exchange futures price: grade, delivery point, transport, and quantity may differ. After aligning those terms, the processor can estimate carry and basis, select a hedge month, and decide whether to close or roll the futures position before the exchange delivery process begins.

What to Check

• Underlying asset, grade, location, unit, currency, and contract multiplier.
• Quote source, bid or ask status, timestamp, value date, and delivery month.
• Funding rate, income, storage, insurance, convenience yield, and transaction costs.
• Roll date, calendar-spread liquidity, position sizing, and collateral return.
• First-notice, last-trade, final-settlement, and broker close-out deadlines.
• Physical-delivery capability, invoice funding, delivery instrument, and post-delivery costs.

Common Mistakes

• Treating a futures premium as a forecast of a higher future spot price.
• Calling a calendar spread an immediate roll profit or loss.
• Comparing cash and futures prices with different grades, locations, or timestamps.
• Assuming margin is enough to fund a physical-delivery invoice.
• Ignoring delivery, roll, and liquidity deadlines until the front contract is near expiration.

This section is educational and does not provide a live valuation, executable quote, hedge recommendation, or delivery instruction. Use current exchange specifications, approved market data, and qualified professional advice for actual derivatives, tax, legal, or accounting decisions.

In this section

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