Definition
The term approved delivery facility refers to a location authorized to receive the underlying commodity specified in a futures contract. The commodity exchange approves delivery facilities, which can include a diverse set of locations such as banks, depository institutions, warehouses, stockyards, operating plants, and grain mills.
Explanation
If a futures contract is closed out before delivery, there is no need to exchange the underlying commodity. However, if the counterparties to a futures contract wish to exchange the underlying asset, the buyer will deliver those assets to the seller at a facility approved by the futures exchange. The approved delivery facilities are published and maintained by the exchange so traders have a good understanding of these locations, and the costs associated with delivery can be readily determined. Typically, a notice of intent to deliver is provided by the holder of the short position, informing the clearing house the commodity will be physically delivered to the buyer.
Related Terms
- The term option writer refers to a trader that establishes a position and collects a premium from the buyer of the option. The most common options sold by a writer include puts and calls.
Moneyzine EditorSeptember 20th, 2023 - The term option buyer refers to an investor that pays a premium to the writer of an option for the right, but not an obligation, to buy or sell the underlying asset. The most common options purchased by a buyer include puts and calls.Moneyzine EditorSeptember 20th, 2023
The term approved warehouse refers to a physical location authorized to receive the underlying commodity specified in a futures contract. The commodity exchange approves delivery facilities, which can include a diverse set of locations, including warehouses.Moneyzine EditorJanuary 5th, 2024
The term alternative delivery procedure refers to a clause appearing in a futures contract that allows a buyer and seller to deliver and receive the commodity in a manner that deviates from the standard contract terms and conditions. Once the long and short positions are matched, an alternative delivery procedure may be invoked at any time during the specified delivery timeframe.Moneyzine EditorJanuary 5th, 2024
