In a futures market, investors buy and sell assets (commodity/future contracts) for delivery on a specified future date. These are regulated markets.
How do the steel futures contracts work? Can there be any physical deliveries if required?
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Under a futures contract, steel buyer/seller is committed to buy or sell a specific tonnage of a particular type/grade of steel for a fixed settlement date in the future at a price agreed today.
A futures contract works by creating a cash flow which is used by the hedger to offset the impact of steel price movements on the contracted steel product.
Characteristic of steel futures markets:
The chart shows how the physical and futures markets interactions.