Cheapest to Deliver - CTD

AAA

DEFINITION of 'Cheapest to Deliver - CTD'

In a futures contract, the cheapest security that can be delivered to the long position to satisfy the contract specifications. The cheapest to deliver security is relevant only for contracts which provide that a variety of slightly different securities may be delivered. This is common in treasury bond futures contracts, which typically specify that any treasury bond can be delivered, so long as it is within a certain maturity range and has a certain coupon rate.

INVESTOPEDIA EXPLAINS'Cheapest to Deliver - CTD'

Determining the cheapest to deliver security is important for the short position, because there is often a disparity between the market price of a security and the conversion factor used to determine the value of the security being delivered. This makes it advantageous for the seller to pick a specific security to deliver over another. Since it is assumed that the short position will provide the cheapest to deliver security, the market pricing of futures contracts is generally based off of the cheapest to delivery security.

RELATED TERMS
  1. Actuals

    The physical commodity that underlies a futures contract or is ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with ...
  3. Derivative

    A security whose price is dependent upon or derived from one ...
  4. Index Futures

    A futures contract on a stock or financial index. For each index ...
  5. Delivery Date

    1. The final date by which the underlying commodity for a futures ...
  6. Futures

    A financial contract obligating the buyer to purchase an asset ...
Related Articles
  1. 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.
  2. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Commodities

    Explore diversifying an investment portfolio through investing in commodities ETFs, and get information on some of the best commodity funds.
  3. Investing Basics

    Understanding Total Return Swaps

    A total return swap is a contract in which a payer and receiver exchange the credit risk and market risk of an underlying asset.
  4. Investing Basics

    Explaining Absolute Return

    Absolute return refers to an asset’s total return over a set period of time. It’s usually applied to stocks, mutual funds or hedge funds.
  5. Economics

    Why The Dollar’s Strength Can Continue

    Overall, the U.S. dollar has rallied this year, with the Dollar Index (DXY) now up by roughly 8 percent year-to-date, but the gain hasn’t been steady.
  6. Economics

    The Story Behind Gold's Mini-Flash Crash

    The gold market was rocked last week by a sudden drop in prices. There are a number of factors that can lead to a flash crash in any market.
  7. Investing

    4 Structured Product Types Wealthy Clients Love

    High-net-worth investors find structured products appealing for a variety of reasons. Here's a look at four types.
  8. Investing

    Is It Time To Buy Commodities?

    Despite the news, the Athens Stock Exchange is down less than 5 percent year-to-date, while the Shanghai Composite remains up more than 10 percent.
  9. Economics

    What to Expect from Russia's Oil-Dependent Economy

    The fate of Russia's economy is for the most part determined by the price of oil. Here's how it's likely to play out.
  10. Mutual Funds & ETFs

    5 Disadvantages of Mutual Funds Compared to ETFs

    In the mutual funds vs. exchange-traded funds debate, ETFs have some clear advantages.
RELATED FAQS
  1. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  2. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  3. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>
  4. What are the main risks associated with trading derivatives?

    The primary risks associated with trading derivatives are market, counterparty, liquidity and interconnection risks. Derivatives ... Read Full Answer >>
  5. How can an investor profit from a fall in the utilities sector?

    The utilities sector exhibits a high degree of stability compared to the broader market. This makes it best-suited for buy-and-hold ... Read Full Answer >>
  6. How are commodity spot prices different than futures prices?

    Commodity spot prices and futures prices are different quotes for different types of contracts. The spot price is the current ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Nanny Tax

    A federal tax that must be paid by people who hire household help (a babysitter, maid, gardener, etc.) and pay them a total ...
  2. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  3. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  4. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  5. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  6. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!