Learn something new every day
More Info... by email
Also known as cash commodities, "actuals" are physical commodities that are delivered once a contract is completed. This makes the commodity different from a futures contract, in that actuals are the commodity that serves as the underlying asset for a futures contract. The terms of that contract will determine the number of units that must be delivered at the maturity date named in the terms.
While it can be somewhat confusing for investors who are just beginning to dabble in commodity trading, it sometimes helps to think of actuals as being the real or actual goods that are being traded using the futures contract as the means for managing the trade. This includes the quantities of the commodity that must be delivered to the trader at a specified point in the future. For example, if the investor enters into a futures contract that calls for delivery of gasoline on a specific date in August, the seller must deliver the specific or actual quantity of gasoline specified in the contract by that date, charging the price per unit identified in the terms of the futures contract. The gasoline that is actually delivered on that date in August constitutes the actuals that are identified in the contract terms.
The concept of actuals is important to this type of investment, in that the investor not only locks in what is ideally a great price for the commodities, but also a quantity of goods that can be sold at a profit once they are in hand. It is not usual for investors to arrange to sell their actuals just prior to the completion of the futures contract, typically for a price per unit that is higher than the price paid for acquisition of the goods.
Actuals usually represent some type of physical commodity, although there are those who believe the term can also be applied to cash commodities. When the futures deal is crafted properly, and the investor has reason to believe that the value of those underlying commodities will exceed the purchase price named in the contract, this approach can be extremely profitable. At the same time, the original seller normally locks in a price for the actuals that at least cover his or her original investment in the commodities and allows for some type of profit from the venture. Under the best of circumstances, both parties involved in that futures contract benefit from the arrangement.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!