Why are most futures positions closed out through a reversing trade rather than held to delivery?

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Why are most futures positions closed out through a reversing trade rather than held to delivery?

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Answer 1

Answer #1

Lets first understand what is a future and a forward contract.

Forward contract is an instrument by which two parties agree to buy or to sell an asset at a specified future date and specified price. It is different from Future contract because it is non standardised whereas Future has standardized features and is traded on exchanges.

This is one of the main reason why future contracts are not held till delivery because futures are standardized and rarely correspond to what traders actually want.

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Answer 2

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Why are most futures positions closed out through a reversing trade rather than held to delivery?

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Why use a forwards contract rather than a futures contract?

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Why are most futures positions closed out through a reversing trade rather than held to delivery?

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Why are most futures positions closed out through a reversing trade rather than held to delivery?