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With a futures contract, the term cost of tender refers to all underlying costs associated with the delivery and certification of the contracted commodity. Accounting for all expenses on a long-term contract to include transportation upon expiration, storage of the commodity during the contract, required insurance coverage, any incidental costs required to maintain the commodity, and any other expenditures incurred by the seller, the commodity is then delivered to the holder upon the contract’s expiration. Usually, payment for the cost of tender is due before the contract expiration date. If, however, the holder of a futures contract decides to close his or her position before the contract expires, rather than receive delivery, then he or she does not incur the cost of tender.
Commodities are usually bought in bulk through what is called a futures contract. Items considered commodities may include grain, livestock, coffee, sugar, tea, cotton or oil, for examples. For the most part, a commodity is an unprocessed raw material that is processed to make goods to be sold on the market. Each commodity has its own unique requirements for both long-term storage and transportation to retain quality. Livestock, for example, will need to be fed and cared for appropriately in order to produce healthy meat, while requiring appropriate transportation methods so that the cattle arrives in a good physical state.
As such, each commodity will have different costs figured into the cost of tender to reflect the maintenance of the commodity over the long term, up to delivery. Sellers of the commodity, since they retain possession, are responsible for this upkeep as well as safe delivery. In exchange, the burden of expenditure falls to the holder if he or she takes delivery. The term commodity is also applied to the financial markets, in particular to currency exchange, stocks and bonds. These also have a cost of tender, though maintenance of these commodities is often less intensive.
Often, financial products like stocks and bonds are purchased through options on an exchange through either a broker or a platform allowing independent trading, rather than in bulk directly from an entity offering such investments. Cost of tender for these types of items usually consists of fees, such as broker commissions, trading fees and maintenance fees to maintain the trading platform. Most often, these fees are charged upon the initiation of a trade, buy or sell, but usually upon sell.
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