I have a basic understanding of what futures represent, and how they came about.
If I call my broker and tell him to buy, say, a contract for 1000 bushels of wheat (speculating that the price will shoot up more than generally expected), and I forget to tell him to sell by the delivery date of the futures contract (or I hold out for a better deal on the market that never comes), would I actually come home one day to find a dump truck spilling massive quantities of farm products on my front lawn? If I took the other side of the contract and had a sell interest but forgot to sell it to an actual farmer, would I wake up one morning to stern looking businessmen chanting, “What do we want? Wheat, 1000 bushels! When do we want it? Now!”, leading me to call and ask cousin Charlie to ask his farmer friend to help me?
Or are there safeguards in the market that distinguish between speculators and actual producers and consumers, meaning that if I have a Sell interest in wheat but am not registered as a farmer or agricultural products dealer, my broker will automagically force-sell to an actual supplier if I fail to do it in time or can’t find a buyer in time?
If you place a buy order and forget to sell befor the term of the contract, you’ve just bought a boxcar’s of wheat. The agreed-upon price will immediately be deducted from your account and sent to the seller. I don’t know the exact proceedure, but you’ll probably get a call that there’s a boxcar (or silo) full of wheat sitting in Iowa that belongs to you and you be charged rent until you take delivery.
If you sell short and forget to cover, you’re on the hook for 20000 lbs of wheat (or whatever the contract is) and your broker has xxx days to deliver. If you fail to make delivery, your broker will buy the wheat on the open market for delivery to the buyer. You’ll probably pay a pretty penny for the wheat and delivery charges.
When you open the contract, you can always instruct your broker to close the position for you on the last day, then you won’t have to worry about. forgetting
Also some contracts (mostly the financial contracts though not the agricultural ones) are cash settled so you’d only receive or be liable for the cash value difference between the spot price and the futures price.
For some (most?) commodities, there’s a specified delivery point when you buy the contract. For instance, Cushing, Oklahoma is the standard delivery point for West Texas Intermediate oil futures. And CME random length lumber futures charge you for rail delivery based on a starting point of Prince George, British Columbia.
I’ve mentioned before that my former company received physical delivery of gold bullion in fulfillment of a contract at one of their secondary business offices. Luckily nobody decided to help themselves to some free samples before an armored car could come by for a pickup.
