Introduction
Actuals are the homogeneous commodities that are the original value of a futures trade. Actuals may be any commodity. However, the most commonly traded commodities are heating oil, natural gas, crude oil, RBOB gasoline, sugar no.11, soy, corn, wheat, platinum, copper, gold, and silver.
The actuals make up for most of the liquid contracts and are likely to see seasonal shifts depending on their production schedules. This is particularly applicable to agricultural produces as some of them are not producible in some seasons. Actuals are generally referred to as the underlying cash commodity or underlying reference commodity.
Understanding Actuals
Actuals are merely the goods being traded on contracts basis. In the futures market, two parties get into an exchange-traded contract under which one takes up the responsibility to deliver a particular quality and quantity of the underlying commodity. The other party involved in the deal will agree to shell out a certain sum to purchase the commodity.
The physical delivery of actuals may be facilitated by cash settlement and the parties involved in the contract may opt to sell their positions prior to the happening of delivery.
Actuals in Physical Market
Actuals, as the name suggests, are traded in physical markets. They are also traded in the futures market. In physical markets, two parties will go on to sign a private agreement to trade the commodity in exchange for cash. They may also agree to trade one commodity for another. Delivery happens more often than not.
Failure to deliver the goods as agreed is, in fact, a breach of the agreement. This will lead to legal liabilities, as mentioned in the agreement. The trading of actuals in delivery markets is necessarily a signed contract in which the product and amount are clearly specified. This is done so as to keep both the parties tied to the norms of the contract and on failing to do so, will expose them to legal liabilities.
