FRM Part I · FRM Exam Part I · Futures Markets
A trader holds a long position in a futures contract and has no wish to take delivery. In practice, which action is most commonly used to end the position, and what fraction of contracts typically ends in physical delivery?
Most traders close a futures position by entering an offsetting trade in the same contract before the delivery period, which nets the position at the clearing house. Only a small fraction of contracts, typically a few percent, end in physical delivery.
- AEntering an offsetting short position before the delivery period; only a small fraction is deliveredCorrect
- BWaiting for the last trading day and accepting delivery; most contracts are delivered
- CAsking the clearing house to cancel the margin account; about half are delivered
- DRolling into a forward contract with the counterparty; about half are delivered
Explanation
Most futures positions are closed out by taking an offsetting trade in the same contract and delivery month, so the exchange nets the positions. Only a small percentage of contracts end in physical delivery.
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