Definition
The term assignable contract refers to an agreement that contains a clause allowing the owner of the contract to assign their rights and obligations to another party. Assignable contracts are typically associated with futures markets.
Explanation
An assignable futures contract allows the holder to transfer their ownership rights to another party; this includes both the original contract holder's obligations as well as their rights to receive any benefits from the contract. This feature provides the contract holder with a mechanism to lock in a profit, or limit a loss, prior to the contract's expiration date.
When participating in the futures market, it's important to understand if the contract contains this assignable option because not all agreements have this feature.
Example
Sally owns a futures contract to purchase coffee at a set price at the end of April. Poor weather in the growing regions of the world have led to a significant increase in the value of coffee. As a result, the value of Sally's contract increases by $5,000, and she would like to lock in these profits. Fortunately, Sally's contract is assignable, and she is able to sell it to another party. The new owner is now responsible for any increase, or decrease, in the value of the contract until its expiration date in late April.
.jpg)
.jpg)
