Question

Traders A and B enter a futures contract and lock in futures price F. Trader A is under contract to take delivery, and Trader B is under contract to make delivery. Which of the following statements is FALSE?

		Trader A will benefit if she exits at a higher price than F, and trader B will benefit if he exits at a lower price than F
		Traders A and B have to wait until maturity before their positions are settled

Answer 1

"Traders A and B have to wait until maturity before their positions are settled" is FALSE

This is because both the parties will not have to wait until maturity for settlement of their positions/ contract. At the time of initiation of the contract, both parties agrees a specific time to expiration, delivery and settlement conditions and quantities, specific undrelying assets. So the trade will be settled on the date decided at the initiation of the contract and not the maturity. Also there is daily settlement of gains and losses of each party. So at the end of the day each party does not have anything owed to each other and settles at zero.