Commodity forward and futures markets

Although spot transactions are non-negligible parts of commodities transactions, nevertheless for risk management and hedging, forward and futures trading have become increasingly important. Futures contracts are very similar to forward contracts by definition; the difference is that futures contracts are standardized contracts traded on established ('regulated') exchanges, whereas forward contracts are traded over-the-counter (OTC). This chapter covers forward and futures contracts. It presents examples of contracts traded on existing commodities exchanges when necessary. The chapter ends with the theoretical determination of forward/futures prices.