Reviewed by Sep 28, 2020| Updated on
Against actual is a transaction in a futures market, where two traders exchange future contracts for cash. In such a deal, only the currency gets traded, and there is no exchange of commodities done.
In other words, the investors trade a cash position on a particular commodity, for a futures contract on the same commodity. This type of exchange is useful for investors who wish to close their hedged positions.
Understanding Against Actual in a Futures Contract
In a futures market, traders can buy or sell a commodity or a financial instrument on a specified date in the future, and for a predetermined price. Such a contract is called a futures contract.
In the futures market, a transaction also known as options can take place, where the purchaser of the option has the right to sell the particular asset for an agreed price, at a later date.
The term “actual” in a futures contract refers to the commodity in the contract, the interest for which increases based on its demand in the market.
Example of the Term Against Actual
There are several types of futures contracts. They include stock futures, currency futures, commodity futures, and index futures. Commodities include oil, precious metals, grains, livestock, energy, etc.
For example, let us take a commodity, gold. The futures contract is drafted to include the date on which the sale takes place, as well as the amount of money for sale. It will be the seller’s obligation to honour the terms of the contract on the specified date, and as per the terms agreed upon. The seller will need to undertake delivery to the purchaser.
In an against actual transaction, the delivery of gold will not take place. Instead, there will be a promise to deliver the gold at a future date, but even though the seller retains the gold, he will still receive the payment for the same.
On the other hand, the buyer buys the commodity, i.e. gold, at the current market rate, without physically receiving the commodity. He can then sell the contract at a profit, to another buyer, without needing to take possession of the commodity ever.
Market complexity is the ability of the market to maintain relatively large market orders, without affecting the security price. Read more
It is an asset that is hard to purchase or sell because it is not traded on any major secondary market exchanges. Read more
A rolling settlement is a method of settling asset trades on continuous days depending on the particular date on which the original trade was placed. Read more
Value-Added Monthly Index (VAMI)
A Value-Added Monthly Index (VAMI) tracks, assuming reinvestment, the monthly output of a hypothetical $1,000 investment over a period of time. Read more
Relative strength is a calculation of the price trend of a stock or a financial instrument in comparison to another instrument, stock, or industry. Read more
Ulcer Index (UI)
The Ulcer Index (UI) is an indicator that calculates downside risk in terms of price declines both in magnitude and length. Read more