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Offsetting Contracts 


In reality, most trader are looking to profit from movements in futures prices and do not want to  actually buy or sell bushels of oats, or bars of gold, or whatever is the underlying commodity of the contract. So, most will not hold a futures contract to its expiration.  In practice, only a small percentage of futures contracts traded are actually held to delivery. Instead, one can close or square his futures position by entering an equal but opposite trade - for example, buying if he previously sold or selling if he previously bought. By offsetting a futures contract, the trader cancels any obligation he has to make or take delivery of the underlying commodity. The difference between the price of the futures contract when the trade was initiated and the price when it is offset is the net gain or loss on the trade. Offsetting must be done prior to contract expiration, and these differ depending upon the futures in question. 


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 This page is created by Julia Lee '99 and is maintained by Professor Satyananda Gabriel of the Economics Department, Mount Holyoke College, January 1999.