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Futures Dictionary Series: Actuals

Actuals

Last week, we brought to you the term “CMSR“. In this third installment, we’ll explain another term called actuals. Heard of it? Now, Actuals are physical commodities such as crude palm oil, soybean and gold. Also called cash commodity or physicals, the term actuals is mostly used in the US.

Actuals

Actuals are traded in the physical market and futures market. In the futures market, actuals are used as underlying commodities for futures contracts.

Trading in actuals generally results in the delivery of the physical commodity to the buyer when the contract expires. But most futures and option traders usually close their positions before the contract expiration date to avoid physical delivery taking place.

Trading actuals in the physical market involves two parties that enter into a private agreement to buy and sell a physical commodity for cash or another commodity. In this case, the physical commodity will be delivered to the buyer.

While in the futures market, two parties agree to buy and sell futures contract of an underlying physical commodity. Although the contract states delivery of the physical commodity to the buyer upon contract expiration date, both parties can sell their positions before the contract expires and the delivery of physical commodity won’t occur.

Until then, trade well and trade smart.

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