Definition
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.
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 deliver the underlying asset, the buyer and seller will transfer those assets at a facility approved by the exchange.
An approved warehouse is one of several types of facilities eligible to receive a commodity such as gold. An approved list of warehouses is published and maintained by the exchange. For example, in order for a refinery to deliver a precious metal such as gold into an exchange, it first must be produced at a refinery with a registered brand to guarantee the quality of the metal. The gold bars are then transported to the approved warehouse by an exchange approved carrier.
This rigorous process ensures the quality of a commodity such as gold. No other source of gold is permitted from the outside other than that produced and delivered via approved refineries and carriers. If gold is physically removed from this carefully controlled environment, it cannot be returned to the approved warehouse, since there is no way for the exchange to guarantee its quality.
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 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.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
