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Investment - Forwards and Futures
Forwards and futures involve duties in the future on the part of both parties to the contract. Forward and futures contracts are frequently termed forward commitments or bilateral contracts because both parties have an obligation in the future. Bilateral contracts subject each party to the risk that the other side will not fulfil the contractual commitment.
Forwards
A forward contract is an agreement between two parties in which one party commits to acquire from the seller an underlying at a later period (i.e., expiration date) for a price agreed at the start of the contract. The future date can be in one month, in one year, in five years, or at any other given date. Investors generally utilize forward contracts to lock in the price of an underlying and to acquire clarity about future financial outcomes. The following example continues the story of the farmer and describes a forward contract between the farmer and a cereal producer.
Example: Forward Contract Between Farmer and Cereal Producer
The contract between the farmer and cereal producer for 50,000 bushels of wheat delivered in mid-September, began in March, at USD8.50 per bushel, is a forward contract.
The underlying is wheat.
The size is 50,000 bushels.
The exercise price is USD8.50 per bushel.
The expiration date is mid-September.
Settlement will be through physical delivery.
In September, the farmer will deliver the wheat to the cereal producer and receive USD8.50 per bushel.
By engaging into the advance contract, the farmer knows the wheat will sell and has eliminated ambiguity about how much money will be received for the wheat. The cereal producer knows that wheat will be available and has reduced ambiguity about how much the wheat will cost.
Forward contracts trade in the over-the-counter market. That is, the agreement is established directly between two persons, a buyer and a seller, although a dealer may help arrange the arrangement. Recall from Course 2, Types and Functioning of Markets, the risk that the other party to the contract will not fulfil their contractual commitments is termed counterparty risk. To limit counterparty risk, the parties to a forward contract examine the default risk of the other party before entering into a contract. If the risk of default is considerable, the parties may not agree to a forward contract.
Or one or both parties may request a performance bond. A performance bond is a guarantee, usually offered by a third party, such as an insurance company, to secure payment in case a party fails to fulfil their contractual duties (defaults). As an alternative to a performance bond, collateral may be sought. Collateral, as we learnt in Course 2, Types and Functioning of Markets, refers to pledged assets. That is, if one party cannot satisfy their contractual commitments, the other party can keep the collateral as compensation.
No payment on the forward contract is required by either side prior to delivery. At expiration, forward contracts normally settle with physical delivery. At settlement, one party will lose, while the other party will gain compared to the spot price at the expiration date – this potential future exposure also serves to heighten counterparty risk. The next example uses the forward contract between the farmer and the grain producer to illustrate how one party’s gains on a forward contract are the other party’s losses.
But if upon expiration of the forward contract, the price in the market for wheat is USD9.00 per bushel, the farmer loses USD0.50 per bushel relative to the spot price. under other words, the farmer might have sold the wheat for USD9.00 per bushel rather than the USD8.50 per bushel agreed on under the forward contract.
The grain producer gains USD0.50 per bushel relative to the spot price since the producer only pays USD8.50 per bushel rather than the USD9.00 current price.
Given the prospect of losing money relative to the future spot price, why do the farmer and grain producer enter into the forward contract? Because everyone is more worried about eliminating the uncertainty associated to the sale price and buy price of wheat in six months, which is valuable in making investment and production decisions. This assurance is more essential to them than winning or losing relative to the future spot price.
Futures
What if the farmer could not identify a party that wanted to be on the opposite side of the contract? Future markets may give the solution.
A futures contract is similar to a forward contract in that it is an agreement that obligates the seller, at a given future date, to deliver to the buyer a specified underlying in return for the set futures price.
The buyer of the contract is bound to take delivery of the underlying, and the seller of the contract is obligated to deliver the underlying, but settlement is often in cash.
The fundamental difference is that futures contracts are standardised contracts that trade on exchanges. The buyers and sellers do not necessarily know who is on the other side of the deal.
Because the contracts are exchanged on exchanges, they are liquid, and it is easy for a buyer or seller to close out a position by taking the opposing side. In other words, the buyer of a contract can subsequently sell the same contract, and likewise the seller of a contract can later buy the same contract.
Counterparty Risk
The inclusion of an exchange as an intermediary between buyers and sellers helps reduce counterparty risk. Counterparty risk cannot be reduced fully, however, because there is always a remote potential that the exchange fails to perform its own contractual commitments. To protect itself against one of the parties failing, the exchange often demands the parties to the contract deposit funds as collateral. The depositing of monies as collateral is called posting margin.
The amount placed on the day that the transaction occurs is called the starting margin. The initial margin should be sufficient to safeguard the exchange from movements in the underlying’s price. The exchange sets the margin amount dependent on the underlying’s price volatility – the greater the underlying’s price volatility, the higher the margin.
Another technique of lowering the counterparty risk for futures contracts is by marking to market daily. Marking to market means that profits or losses on futures contracts are paid at the end of every business day, which has the effect of resetting the contract price and cash flows to buyers and sellers. At the end of each day, the exchange establishes a settlement price based on the closing deals and determines the difference between the current settlement price and the previous day’s settlement price.
The buyer’s and seller’s margin accounts are then modified to reflect the change in settlement price and whether it was to their advantage (a gain) or disadvantage (a loss). Marking to market continues until the contract expires.
If at any moment the balance in an account falls below a pre-specified amount, the exchange will require the user to send additional funds. If the customer does not do so, the futures trade is closed. Daily marking to market decreases counterparty risk and administrative overhead for the exchange and provides the following:
Enhanced trading
Increased liquidity
Reduced transaction costs on futures contracts
Standardised Futures Contracts
Standardised terms of futures contracts comprise the underlying; size, price, and expiration date of the contract; and settlement.
A variety of different standardised contracts may trade for an underlying on an exchange, although standardizing of futures contracts limits the number of contract types accessible for the same underlying. Typically, each of the contracts is the same with respect not only to the underlying, but also to the size and settlement. Exercise price and expiration date may vary among contracts.
Futures often expire every quarter, usually on the third Wednesday of March, June, September, and December in the United States. In addition, various end-of-month futures are available. Standardised contracts may exist that simply differ on the set exercise price. A futures contract’s net initial value to each party should be zero; cash may be paid by one of the parties to enter into the contract, depending on how the exercise price compares with the current settlement price.
The following example depicts futures contracts on wheat together with activities of and cash flows for the farmer and grain producer. The cash flows include those in the marking-to-market procedure. For simplicity, the price of wheat changes only twice over the term of the contract and upon expiration. In practice, the price is likely to change daily, with resultant changes to the margin accounts of the farmer and cereal producer.
Example: Futures Contracts on Wheat
Futures contracts trade on a variety of exchanges globally, including the Chicago Mercantile Exchange (CME).
The normal terms of a futures contract on wheat on the CME include the following:
Underlying: #2 Soft Red Winter wheat at contract price; #1 Soft Red Winter wheat with a 3-cent premium; or other deliverable grades
Size: 5,000 bushels (about 136 metric tons)
Settlement: monetary settlement
Pricing unit: cents in USD per unit
Expiration: March (H), May (K), July (N), September (U), and December (Z)
Example: Farmer Sells Futures at an Agreed Price of 850 cents/Bushel
The farmer and the grain producer locate contracts that expire in September with exercise values ranging from 550.0 cents to 1,100.0 cents. The farmer decides to sell 10 contracts with an exercise price of 850.0 cents. This signifies the farmer has a contract for the delivery of 50,000 bushels of wheat or their cash settlement equivalent. The cereal manufacturer decides to buy 10 contracts with an exercise price of 850.0 cents.
The farmer and the cereal producer do not trade directly with each other, but through an exchange. The current spot price of wheat is 900.0 cents per bushel. Because a contract’s net initial value to each party should be zero, the farmer has to send the exchange 50.0 cents per bushel and the exchange puts 50.0 cents into the cereal producer’s account. The effective receipt to the farmer and cost to the grain producer is 850.0 cents per bushel if the contract expires today. In addition, each is obliged to deposit an additional amount as collateral with the exchange to protect the exchange, which takes on the counterparty risk to the contract.
The price of wheat remains stable for two months and then changes to 875.0 cents per bushel, a fall of 25.0 cents from the initial spot price of 900.0 cents. The farmer’s margin account is increased by 25.0 cents per bushel while the grain producer’s margin account is reduced by 25.0 cents per bushel. After another two months, the price increases to 925.0 cents per bushel, an increase of 50.0 cents over the previous spot price of 875.0 cents. So, the farmer’s account is reduced by 50.0 cents per bushel and the cereal producer’s account is enhanced by 50.0 cents per bushel.
At expiration, the price is 910.0 cents per bushel, a decrease in price of 15.0 cents from the previous spot price of 925.0 cents. The farmer’s account is increased by 15.0 cents per bushel while the cereal producer’s account is reduced by 15.0 cents per bushel. The farmer has paid over time by paying in net 60 cents (= −50.0 + 25.0 – 50.0 + 15.0). The cereal producer has gotten over time net 60 cents. Each will receive back the excess cash deposited to protect the exchange.
The farmer and the cereal producer are each in the same situation as they would have been under the forward contract. The farmer can sell the wheat in the spot market for 910.0 cents per bushel and pay 60 cents per bushel to settle the futures contract. The farmer has a net receipt of 850.0 cents per bushel. Similarly, the grain producer can buy the wheat in the spot market for 910.0 cents per bushel and receive 60 cents per bushel to fulfill the futures contract. So, the cereal producer has a net cost of 850.0 cents per bushel.
Distinctions between Forwards and Futures
Forwards and futures differ in how they trade, the flexibility of important elements in the contract, liquidity, counterparty risk, transaction costs, timing of cash flows, and settlement. The following table provides more data regarding how forwards and futures differ.
Forwards Futures
Trading and Flexibility of Terms
Forward contracts transact in the over-the-counter market and terms are modified according to the contracting parties’ needs.
Futures contracts trade on exchanges. Each exchange normally establishes the terms of the contracts that trade on it. Futures contracts are standardised independent of buyers’ and sellers’ individual needs. As a result, the expiration date or contract size may not match that desired by the buyer or seller of the futures contract.
Liquidity
Forward contracts trade in the over-the-counter market and are illiquid.
Futures contracts are relatively liquid; they trade on exchanges and can be purchased and sold at times other than initiation. An investor can close out (cancel) a trade utilizing futures contracts quite quickly.
Counterparty Risk
Counterparty risk is potentially quite high in forward contracts. That is, the danger that one party may be unwilling or unable to meet their contractual responsibilities.
Futures contracts have lesser counterparty risk. The inclusion of an exchange or a clearing house as the intermediary for all buyers and all sellers helps reduce counterparty risk. Counterparty risk cannot be reduced fully, however, because there is always a remote potential that the exchange fails to perform its own contractual commitments. Daily marking to market considerably decreases counterparty risk for futures contracts compared with advance contracts.
Transaction Costs
There can be significant expenditures to arrange a forward contract. Transaction fees normally are contained in forward contracts and are not clearly accessible to the customer.
Futures contracts are exchanged on exchanges through brokerage firms or brokers (agents licensed to trade directly with the exchange), and the transaction expenses are visible. So, there is more transparency in the futures markets. A broker often earns the difference between the bid and ask prices as a commission to arrange the trade. Because futures contracts are standardised, transaction costs are relatively cheap.
Timing of Cash Flows
Forward contracts have no cash flows except at maturity. It is vital to remember that if forward and futures contracts with equal terms are held to maturity, the end outcome is the same. For a forward contract, the complete effect of shifting prices is taken into account at maturity.
Futures contracts are marked to market daily. It is vital to remember that if forward and futures contracts with equal terms are held to maturity, the end outcome is the same. For a futures contract, the effect of changing prices is taken into account on an ongoing (daily) basis.
Settlement
Forward contracts may settle with physical delivery or monetary payment.
Futures contracts are often settled with cash.
Comparison between Forward and Futures Contracts
SIMILARITIES
Both types of contracts exist on a wide range of underlying assets, including stocks, bonds, agricultural products, and precious and industrial metals.
For both sorts of contracts, both the buyer and seller have obligations.
Both forms of contracts allow locking in a price now for a transaction that will occur in the future.
DIFFERENCES
Forwards are bespoke contracts that trade in private over-the-counter marketplaces, whereas futures are standardised contracts that trade on exchanges.
Counterparty risk is substantial with forward contracts, but restricted with futures contracts. Requirements enforced by exchanges, such as initial and maintenance margins and daily marking to market, lower the counterparty risk associated with futures contracts.
It is easier to exit a position before to the settlement date with a futures contract than with a forward contract. A position in a futures contract can be settled (closed) by taking an opposite position in the same contract.
Forwards and futures involve duties in the future on the part of both parties to the contract. Forward and futures contracts are frequently termed forward commitments or bilateral contracts because both parties have an obligation in the future. Bilateral contracts subject each party to the risk that the other side will not fulfil the contractual commitment.
Forwards
A forward contract is an agreement between two parties in which one party commits to acquire from the seller an underlying at a later period (i.e., expiration date) for a price agreed at the start of the contract. The future date can be in one month, in one year, in five years, or at any other given date. Investors generally utilize forward contracts to lock in the price of an underlying and to acquire clarity about future financial outcomes. The following example continues the story of the farmer and describes a forward contract between the farmer and a cereal producer.
Example: Forward Contract Between Farmer and Cereal Producer
The contract between the farmer and cereal producer for 50,000 bushels of wheat delivered in mid-September, began in March, at USD8.50 per bushel, is a forward contract.
The underlying is wheat.
The size is 50,000 bushels.
The exercise price is USD8.50 per bushel.
The expiration date is mid-September.
Settlement will be through physical delivery.
In September, the farmer will deliver the wheat to the cereal producer and receive USD8.50 per bushel.
By engaging into the advance contract, the farmer knows the wheat will sell and has eliminated ambiguity about how much money will be received for the wheat. The cereal producer knows that wheat will be available and has reduced ambiguity about how much the wheat will cost.
Forward contracts trade in the over-the-counter market. That is, the agreement is established directly between two persons, a buyer and a seller, although a dealer may help arrange the arrangement. Recall from Course 2, Types and Functioning of Markets, the risk that the other party to the contract will not fulfil their contractual commitments is termed counterparty risk. To limit counterparty risk, the parties to a forward contract examine the default risk of the other party before entering into a contract. If the risk of default is considerable, the parties may not agree to a forward contract.
Or one or both parties may request a performance bond. A performance bond is a guarantee, usually offered by a third party, such as an insurance company, to secure payment in case a party fails to fulfil their contractual duties (defaults). As an alternative to a performance bond, collateral may be sought. Collateral, as we learnt in Course 2, Types and Functioning of Markets, refers to pledged assets. That is, if one party cannot satisfy their contractual commitments, the other party can keep the collateral as compensation.
No payment on the forward contract is required by either side prior to delivery. At expiration, forward contracts normally settle with physical delivery. At settlement, one party will lose, while the other party will gain compared to the spot price at the expiration date – this potential future exposure also serves to heighten counterparty risk. The next example uses the forward contract between the farmer and the grain producer to illustrate how one party’s gains on a forward contract are the other party’s losses.
But if upon expiration of the forward contract, the price in the market for wheat is USD9.00 per bushel, the farmer loses USD0.50 per bushel relative to the spot price. under other words, the farmer might have sold the wheat for USD9.00 per bushel rather than the USD8.50 per bushel agreed on under the forward contract.
The grain producer gains USD0.50 per bushel relative to the spot price since the producer only pays USD8.50 per bushel rather than the USD9.00 current price.
Given the prospect of losing money relative to the future spot price, why do the farmer and grain producer enter into the forward contract? Because everyone is more worried about eliminating the uncertainty associated to the sale price and buy price of wheat in six months, which is valuable in making investment and production decisions. This assurance is more essential to them than winning or losing relative to the future spot price.
Futures
What if the farmer could not identify a party that wanted to be on the opposite side of the contract? Future markets may give the solution.
A futures contract is similar to a forward contract in that it is an agreement that obligates the seller, at a given future date, to deliver to the buyer a specified underlying in return for the set futures price.
The buyer of the contract is bound to take delivery of the underlying, and the seller of the contract is obligated to deliver the underlying, but settlement is often in cash.
The fundamental difference is that futures contracts are standardised contracts that trade on exchanges. The buyers and sellers do not necessarily know who is on the other side of the deal.
Because the contracts are exchanged on exchanges, they are liquid, and it is easy for a buyer or seller to close out a position by taking the opposing side. In other words, the buyer of a contract can subsequently sell the same contract, and likewise the seller of a contract can later buy the same contract.
Counterparty Risk
The inclusion of an exchange as an intermediary between buyers and sellers helps reduce counterparty risk. Counterparty risk cannot be reduced fully, however, because there is always a remote potential that the exchange fails to perform its own contractual commitments. To protect itself against one of the parties failing, the exchange often demands the parties to the contract deposit funds as collateral. The depositing of monies as collateral is called posting margin.
The amount placed on the day that the transaction occurs is called the starting margin. The initial margin should be sufficient to safeguard the exchange from movements in the underlying’s price. The exchange sets the margin amount dependent on the underlying’s price volatility – the greater the underlying’s price volatility, the higher the margin.
Another technique of lowering the counterparty risk for futures contracts is by marking to market daily. Marking to market means that profits or losses on futures contracts are paid at the end of every business day, which has the effect of resetting the contract price and cash flows to buyers and sellers. At the end of each day, the exchange establishes a settlement price based on the closing deals and determines the difference between the current settlement price and the previous day’s settlement price.
The buyer’s and seller’s margin accounts are then modified to reflect the change in settlement price and whether it was to their advantage (a gain) or disadvantage (a loss). Marking to market continues until the contract expires.
If at any moment the balance in an account falls below a pre-specified amount, the exchange will require the user to send additional funds. If the customer does not do so, the futures trade is closed. Daily marking to market decreases counterparty risk and administrative overhead for the exchange and provides the following:
Enhanced trading
Increased liquidity
Reduced transaction costs on futures contracts
Standardised Futures Contracts
Standardised terms of futures contracts comprise the underlying; size, price, and expiration date of the contract; and settlement.
A variety of different standardised contracts may trade for an underlying on an exchange, although standardizing of futures contracts limits the number of contract types accessible for the same underlying. Typically, each of the contracts is the same with respect not only to the underlying, but also to the size and settlement. Exercise price and expiration date may vary among contracts.
Futures often expire every quarter, usually on the third Wednesday of March, June, September, and December in the United States. In addition, various end-of-month futures are available. Standardised contracts may exist that simply differ on the set exercise price. A futures contract’s net initial value to each party should be zero; cash may be paid by one of the parties to enter into the contract, depending on how the exercise price compares with the current settlement price.
The following example depicts futures contracts on wheat together with activities of and cash flows for the farmer and grain producer. The cash flows include those in the marking-to-market procedure. For simplicity, the price of wheat changes only twice over the term of the contract and upon expiration. In practice, the price is likely to change daily, with resultant changes to the margin accounts of the farmer and cereal producer.
Example: Futures Contracts on Wheat
Futures contracts trade on a variety of exchanges globally, including the Chicago Mercantile Exchange (CME).
The normal terms of a futures contract on wheat on the CME include the following:
Underlying: #2 Soft Red Winter wheat at contract price; #1 Soft Red Winter wheat with a 3-cent premium; or other deliverable grades
Size: 5,000 bushels (about 136 metric tons)
Settlement: monetary settlement
Pricing unit: cents in USD per unit
Expiration: March (H), May (K), July (N), September (U), and December (Z)
Example: Farmer Sells Futures at an Agreed Price of 850 cents/Bushel
The farmer and the grain producer locate contracts that expire in September with exercise values ranging from 550.0 cents to 1,100.0 cents. The farmer decides to sell 10 contracts with an exercise price of 850.0 cents. This signifies the farmer has a contract for the delivery of 50,000 bushels of wheat or their cash settlement equivalent. The cereal manufacturer decides to buy 10 contracts with an exercise price of 850.0 cents.
The farmer and the cereal producer do not trade directly with each other, but through an exchange. The current spot price of wheat is 900.0 cents per bushel. Because a contract’s net initial value to each party should be zero, the farmer has to send the exchange 50.0 cents per bushel and the exchange puts 50.0 cents into the cereal producer’s account. The effective receipt to the farmer and cost to the grain producer is 850.0 cents per bushel if the contract expires today. In addition, each is obliged to deposit an additional amount as collateral with the exchange to protect the exchange, which takes on the counterparty risk to the contract.
The price of wheat remains stable for two months and then changes to 875.0 cents per bushel, a fall of 25.0 cents from the initial spot price of 900.0 cents. The farmer’s margin account is increased by 25.0 cents per bushel while the grain producer’s margin account is reduced by 25.0 cents per bushel. After another two months, the price increases to 925.0 cents per bushel, an increase of 50.0 cents over the previous spot price of 875.0 cents. So, the farmer’s account is reduced by 50.0 cents per bushel and the cereal producer’s account is enhanced by 50.0 cents per bushel.
At expiration, the price is 910.0 cents per bushel, a decrease in price of 15.0 cents from the previous spot price of 925.0 cents. The farmer’s account is increased by 15.0 cents per bushel while the cereal producer’s account is reduced by 15.0 cents per bushel. The farmer has paid over time by paying in net 60 cents (= −50.0 + 25.0 – 50.0 + 15.0). The cereal producer has gotten over time net 60 cents. Each will receive back the excess cash deposited to protect the exchange.
The farmer and the cereal producer are each in the same situation as they would have been under the forward contract. The farmer can sell the wheat in the spot market for 910.0 cents per bushel and pay 60 cents per bushel to settle the futures contract. The farmer has a net receipt of 850.0 cents per bushel. Similarly, the grain producer can buy the wheat in the spot market for 910.0 cents per bushel and receive 60 cents per bushel to fulfill the futures contract. So, the cereal producer has a net cost of 850.0 cents per bushel.
Distinctions between Forwards and Futures
Forwards and futures differ in how they trade, the flexibility of important elements in the contract, liquidity, counterparty risk, transaction costs, timing of cash flows, and settlement. The following table provides more data regarding how forwards and futures differ.
Forwards Futures
Trading and Flexibility of Terms
Forward contracts transact in the over-the-counter market and terms are modified according to the contracting parties’ needs.
Futures contracts trade on exchanges. Each exchange normally establishes the terms of the contracts that trade on it. Futures contracts are standardised independent of buyers’ and sellers’ individual needs. As a result, the expiration date or contract size may not match that desired by the buyer or seller of the futures contract.
Liquidity
Forward contracts trade in the over-the-counter market and are illiquid.
Futures contracts are relatively liquid; they trade on exchanges and can be purchased and sold at times other than initiation. An investor can close out (cancel) a trade utilizing futures contracts quite quickly.
Counterparty Risk
Counterparty risk is potentially quite high in forward contracts. That is, the danger that one party may be unwilling or unable to meet their contractual responsibilities.
Futures contracts have lesser counterparty risk. The inclusion of an exchange or a clearing house as the intermediary for all buyers and all sellers helps reduce counterparty risk. Counterparty risk cannot be reduced fully, however, because there is always a remote potential that the exchange fails to perform its own contractual commitments. Daily marking to market considerably decreases counterparty risk for futures contracts compared with advance contracts.
Transaction Costs
There can be significant expenditures to arrange a forward contract. Transaction fees normally are contained in forward contracts and are not clearly accessible to the customer.
Futures contracts are exchanged on exchanges through brokerage firms or brokers (agents licensed to trade directly with the exchange), and the transaction expenses are visible. So, there is more transparency in the futures markets. A broker often earns the difference between the bid and ask prices as a commission to arrange the trade. Because futures contracts are standardised, transaction costs are relatively cheap.
Timing of Cash Flows
Forward contracts have no cash flows except at maturity. It is vital to remember that if forward and futures contracts with equal terms are held to maturity, the end outcome is the same. For a forward contract, the complete effect of shifting prices is taken into account at maturity.
Futures contracts are marked to market daily. It is vital to remember that if forward and futures contracts with equal terms are held to maturity, the end outcome is the same. For a futures contract, the effect of changing prices is taken into account on an ongoing (daily) basis.
Settlement
Forward contracts may settle with physical delivery or monetary payment.
Futures contracts are often settled with cash.
Comparison between Forward and Futures Contracts
SIMILARITIES
Both types of contracts exist on a wide range of underlying assets, including stocks, bonds, agricultural products, and precious and industrial metals.
For both sorts of contracts, both the buyer and seller have obligations.
Both forms of contracts allow locking in a price now for a transaction that will occur in the future.
DIFFERENCES
Forwards are bespoke contracts that trade in private over-the-counter marketplaces, whereas futures are standardised contracts that trade on exchanges.
Counterparty risk is substantial with forward contracts, but restricted with futures contracts. Requirements enforced by exchanges, such as initial and maintenance margins and daily marking to market, lower the counterparty risk associated with futures contracts.
It is easier to exit a position before to the settlement date with a futures contract than with a forward contract. A position in a futures contract can be settled (closed) by taking an opposite position in the same contract.
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