Introduction
When it comes to futures contracts, the delivery point is the location at which the physical commodity involved in the transaction or contract is to be delivered.
The futures contract investors maintaining their position should be prepared in order to receive or accept the delivery of the commodity and also should make the payment as agreed in the contract in exchange for the receipt of the physical commodity.
Determining Delivery Point
The delivery point of a commodity as per the contract or transaction would be decided by the parties involved. However, in most cases, the selling party would have to deliver the commodity at the place where the buyer would want it delivered.
If the seller is unable to deliver at that particular place where the seller specifies, then the contract or the transaction may not be completed.
Understanding Delivery Point
The delivery point is one of the crucial factors involved in writing futures contracts. The delivery point may also impact the net delivery cost or price of the physical commodity being delivered.
The terms and conditions of the delivery will underwrite the worth of the goods being delivered. As there involves physical delivery of goods, the cost of delivery varies across delivery points.
For instance, if the delivery source is located at Bengaluru, then the cost of delivery would be lower if the delivery point is Chennai as compared to Mumbai. This is because of the distance between the source and delivery point.
Hence, in order to specify the price of a commodity for contracts, knowing the delivery points is necessary. Most of the futures market participants place trades speculatively, and they don’t consider the delivery of commodities in the futures contracts.
