CG56063 - Futures: market practices: contracts closed out before maturity

It is unusual for commodity or financial futures dealt in on a recognised futures exchange to be held at completion. Participants in the market will expect to realise a profit or loss by closing out the contract before it matures. This involves buying or selling another futures contract with reciprocal obligations to the first. Therefore, in the example at CG56060 the investor could close out the two contracts in December by buying two contracts for March cocoa at a price of £1,840 per tonne. The total profit to the investor from these transactions in futures will be

20 x £1,900	£38,000
20 x £1,840	£36,800
Profit	£1,200

The investor will be entitled to a payment of £1,200 from the broker less dealing costs plus a return of the margin payment. He ceases to be under any obligation to deliver, and does not become obliged to take delivery of any cocoa.

For the CG consequences of closing out a futures contract see CG56079.