What is 'Against Actual'

Against actual is the transaction that takes place when two traders exchange futures contracts for cash. There is no physical exchange of commodities made, only the trade of currency for the deal. These types of transactions take place on the futures market.

BREAKING DOWN 'Against Actual'

Against actual transactions take place on the futures market. The futures market is a financial exchange where traders can purchase contracts to buy a specific amount and type of a commodity with a delivery in the future. The contract will specify prices and delivery dates. Future contracts may also be called options, or options contracts. The term "actual" in an against actual transaction is the commodity referenced in the contract.

There are layered risks in these types of transactions due to the potential volatility in the commodity market. The prices of the futures market are not market-set but instead set by supply and demand. As trading increases with a particular commodity, it can also increase interest in the actual.

Protections for Against Actual Transactions

Several protections have been put in place to ensure against abuse in the futures markets. These protections help support the stability of the market and facilitate trading.

  • Commodity Futures Trading Commission (CFTC) regulates the commodity futures and options markets. Its goals include the promotion of competitive and efficient futures markets and the protection of investors against manipulation, abusive trade practices, and fraud.

  • Commodity Exchange Act  (CEA) of 1974 provides federal regulation of all futures trading activities. The Act prevents and removes obstructions on interstate commerce in commodities by regulating transactions on commodity futures exchanges.

  • Commodity Futures Modernization Act  (CFMA) of 2000 further defined the roles of the CFTC while updating commodity trading regulations, most notably to address newer types of financial contracts such as derivatives.

Example of Against Actual

There are many different types of futures contracts. Traditionally, these contracts have covered commodities such as precious metals, oil, meats, and grains. These days, there are some additional modern commodities available for trade, like bandwidth and emissions credits.

For example, a buyer would introduce an against actual trade in silver futures. They would propose a dollar amount of silver to purchase and the date for the execution of the sale. An interested seller would then have an obligation to meet the proposed terms of that contract by providing the commodity, or the actual, based on the agreed upon terms. The seller would deliver the silver to the purchaser.

When making this same trade as an against actual, all of the steps still happen, except for the last one. The delivery of the real silver product does not take place. Instead, there is a promise of a future silver delivery without a set due date. The seller receives payment for the silver, but also retain the silver itself.

The buyer has bought a quantity of silver at today’s market rate, without having received the physical delivery. They may then sell the contract without having ever to take possession of the silver, which allows the potential for a profit to the original buyer.

  1. Commodity

    A commodity is a basic good used in commerce that is interchangeable ...
  2. Physical Delivery

    Physical delivery is a term in an options or futures contract ...
  3. Exempt Commodity

    An exempt commodity is any commodity other than an excluded or ...
  4. Spot Commodity

    A spot commodity is any commodity available for immediate trade, ...
  5. Commodity Market

    The commodity market is a physical or virtual marketplace for ...
  6. Commodity Futures Modernization ...

    The Commodity Futures Modernization Act (CFMA), passed in 20 ...
Related Articles
  1. Investing

    An Introduction To Trading Silver Futures

    Silver Futures are becoming popular trading instruments. Here is a primer on how to trade them.
  2. Investing

    All About Liquid Commodities

    You might hear 'liquid commodities' and think of an auction, but they're actually a high-volume, fast paced financial product suitable for day traders.
  3. Trading

    Beginner's Guide To Trading Futures

    An in-depth look into what futures are, and how you can build a solid base to begin trading them.
  4. Investing

    Commodities Without Worries

    ETFs have made commodities investing easier, but look before leaping.
  5. Investing

    The Role Of Speculators In The Commodity Market

    Contrary to popular belief, speculators are important for the market. Find out exactly what they do.
  6. Investing

    3 Reasons to Invest in Discounted Commodities

    Though they're selling at depressed prices, there are several reasons that it could make sense to invest in commodities now.
  7. Investing

    Top 3 Commodities ETFs for 2018

    Commodities ETFs are a great way for investors to jump into the sector while avoiding some of the volatility that tends to befall the individual stocks. Here are three with momentum.
  8. Trading

    Advantages Of Trading Futures Over Stocks (APPL)

    We look at the top eight advantages of trading futures over stocks.
  9. Investing

    3 ETFs That Suggest Commodities Are Headed Lower (COMT, DBC)

    Nearby trendlines and resistance from major moving averages suggest that the broad commodities market is headed lower from here.
  1. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. Learn how futures contracts can be used to limit ... Read Answer >>
  2. What is the difference between options and futures?

    An option gives a buyer the right, but not the obligation to buy or sell an asset, A futures contract obligates the buyer ... Read Answer >>
  3. How can electricity be traded as a commodity by an individual investor?

    Learn the characteristics unique to electricity trading as a commodity and how investors can trade electricity futures on ... Read Answer >>
Trading Center