That is 'Discount' | Information 2019 - What is it?
The discount concerns the price of the future contract and time of the contract to expire. As the contract addresses to the expiration, branches of the future contract at higher price in comparison with when the contract was further away from the expiration. It is caused by that the cash price of high price of the future, both the contractual and cash price has to meet eventually, thus, price increase of the future to the cash price.
2019 - Discount
Discount, Information - 2019
Destruction of 'discount' | Information 2019 - What is it?
The discount approves those who pure long as the prices of futures increase to the cash price. Assume that you can buy the one-year oil contract for 50 today, but the expected cash price makes one year 60 from now on. It is a discount as the price price of the future will move to the cash price. The expected future cash price always changes as the price of the contract of the future based on the basic principles, exchanging an arrangement and supply and demand of a basic asset.
Discount - contrast contango. Kontango - when the price of the future of goods or the main safety is higher than the expected cash price. Therefore, contango specifies that the prices of futures fall for a long time to meet to future cash price. For example, if future contracts on crude oil of West Texas average (WTI) for delivery in six months trade in 50 while the expected cash price on goods makes 40 for barrel, the market as speak, "in contango".
Benefit of a discount
The main reason for a discount in the future market of consumer goods - shortage of goods in the market of cash goods. As the prices of futures are lower than the cash prices, investors who are pure long commodity benefit from increase in the prices of futures for a long time as the price of the future and the cash price meet. Besides, the discount of overcoming of the future market is favorable to speculators and short-term dealers who want to derive benefit of arbitration. The reason that the prices of futures and the cash price meet, consists that if they don't do, there is a profit of riskless which will be made between these two prices. Therefore, these two prices conduct together as dealers try to operate it.
Change of the markets
The future market can pass between contango and a discount. It can remain or in the state during small or during the long periods of time. If the cleaning plant of natural gas has a short-term closing which could overstate the cash prices but because he doesn't mention a long-term outlook, futures further away from the expiration remain stable and below the current cash price. It - contango.
On the other hand, the sharp agricultural season could place agricultural commodify in a discount. The current delivery of goods not the main concern, but come harvesting time, there could be delivery problems which increase the prices of the future contract which are further away from the expiration.
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