Allowances

AAA

DEFINITION of 'Allowances'

A deviation from the basis grade or location allowable when delivering commodities under the terms of a futures contract. Allowances represent a premium or discount to the standards outlined in the futures agreement.

INVESTOPEDIA EXPLAINS 'Allowances'

Under a futures contract, the deliverables are standardized to a specific quality of good or delivery location. For example, an oil futures contract might require you to deliver 1,000 barrels of crude with an 850 kg/m³ density and 2% sulfur content. Allowances are made to these standards, since it might not be possible to find the specific good in a reasonable amount of time. For this example, an allowance may allow the seller to deliver within a range of 10 kg/m³ for density and 0.5% for sulfur.

RELATED TERMS
  1. Gross Receipts

    A tax term relating to the total business revenue from services ...
  2. Basis Grade

    The minimum accepted standard that a deliverable commodity must ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  4. Futures Market

    An auction market in which participants buy and sell commodity/future ...
  5. Futures Contract

    A contractual agreement, generally made on the trading floor ...
  6. Delivery

    The action by which an underlying commodity, security, cash value, ...
Related Articles
  1. Forex Education

    Getting Started In Foreign Exchange Futures

    Learn how these futures are used for hedging and speculating, and how they are different from traditional futures.
  2. Options & Futures

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  3. Options & Futures

    An Introduction To Managed Futures

    Their inverse correlation with stocks and bonds make these alternative investments worth getting to know.
  4. Options & Futures

    Interpreting Volume For The Futures Market

    Learn how to read the volume reports, look at the relation to liquidity and interpret volume using open interest.
  5. Options & Futures

    Trading The Soft Commodity Markets

    Learn the contract specifications for a few of the most heavily traded commodities.
  6. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  7. Forex Education

    Forex Tutorial: The Forex Market

    In this online tutorial, beginners and experts alike can learn the ins and outs of the retail forex market.
  8. Options & Futures

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  9. Options & Futures

    Give Yourself More Options With Real Estate Options

    Real estate options have many benefits, including a smaller initial capital requirement.
  10. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center