Just as equity and equity index futures can be traded in the futures market segment of the stock exchanges, similarly, commodities can be traded on commodity futures exchanges.
Each futures contract has a fixed traded lot size, contract expiry date and well defined quality specifications. E.g. 100 barrels of Brent Crude Oil for delivery on August 20, 2006. In this futures contract, the traded lot size is 100 barrels and all trades can be placed only in integer multiples of this lot size – 100 barrels, 200 barrels, 300 barrels and so on. The crude oil should be of the Brent Crude Oil variety conforming to specifications required by the exchanges. Middle Eastern Crude Oil or West Texas Intermediate Crude Oil is not acceptable. Finally the contract is meant for settlement on August 20, 2006 and not before or after that.
Typically, on Indian exchanges, at least 3 contracts for a particular commodity run simultaneously with only the expiry dates varying. In the above example, there would be three Brent Crude Oil contracts at any given time, say for August, September and October delivery.
Buyers and sellers not interested in taking or giving physical delivery of the commodity should square off their positions before the expiry date of the contract.
