What is 'Cost Of Tender'

Cost of tender is the total charges associated with the delivery and certification of commodities underlying a futures contract. The cost of tender represents the total costs related to taking physical delivery of a commodity. These costs are assessed only if the futures contract holder wishes to receive the commodity rather than close the position prior to expiration.

BREAKING DOWN 'Cost Of Tender'

The cost of tender is essentially the cost of doing business. Any costs associated with the actual physical delivery of the commodity comprise the cost of tender. For example, if an investor is long corn (owns a futures contract on corn), the seller must deliver the corn to the contract holder when the contract expires (unless the contract holder closes the position prior to expiration). The holder must compensate the seller for the cost of tender, including transportation, carrying costs and any other expenses that are associated with the delivery.

How Cost of Tender Works

In all types of financial markets, to "tender" means to give notice, in this case to an exchange's clearing house, that delivery of the physical commodity underlying the futures contract will begin. Most investors who invest in commodity futures choose to close their positions before expiration, so they aren't financially responsible for delivering the commodity. This way, an investor can benefit from movement in the commodity price without having to deal with the major complications of taking physical delivery.

Often, traders will simply roll over a futures contract that is close to expiration to another contract in a further-out month. Futures contracts have expiration dates (while stocks trade in perpetuity). Rolling over helps an investor avoid the costs and obligations associated with settlement of the contracts. Costs of tender are most often settled by physical settlement or cash settlement. Many financial futures contracts, such as the popular e-mini contracts, are cash settled upon expiration. This means on the last day of trading, the value of the contract is marked to market and the trader’s account is debited or credited depending on whether there is a profit or loss.

Tender charges are usually paid to official warehouses where certification and delivery take place. Sometimes, they can also be due to a clearing house. Tender costs can vary widely between different warehouses, and exchanges are not obligated to enforce limits of any kind on tender charges. Most exchanges will list their costs on their official websites. Sometimes, the exact cost is relayed in the futures contract

RELATED TERMS
  1. Tender Offer

    An offer to purchase some or all of shareholders' shares in a ...
  2. Proration

    A situation during a corporate action in which the available ...
  3. Legal Tender

    Any official medium of payment recognized by law that can be ...
  4. Approved Delivery Facility

    A facility authorized by an exchange to be used as a location ...
  5. Schedule TO-C

    This schedule, filed with the SEC, is simply any written communication ...
  6. Contract Month

    The month in which a futures contract expires. The contract can ...
Related Articles
  1. Investing

    Qualcomm May Have to Pay $120 to Clinch NXP Deal

    Qualcomm may have to boost its $110-a-share bid price for NXP given the current lackluster enthusiasm.
  2. Trading

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  3. Investing

    Introduction To Currency Futures

    The forex market is not the only way for investors and traders to participate in foreign exchange.
  4. Investing

    Qualcomm's Bid For NXP Still Lacks Investor Support

    Qualcomm will probably have to raise its $110 bid price if it's serious about acquiring NXP.
  5. Investing

    NXP/Qualcomm: Is a New Deal Price Coming?

    Investors are reportedly pressuring NXP to get Qualcomm to raise its bid for their proposed merger.
  6. Investing

    Investing in Crude Oil Futures: The Risks and Rewards

    Learn about the risks and rewards of trading oil futures contracts. Read about a few strategies to limit the risk in trading oil futures contracts.
RELATED FAQS
  1. How do futures contracts roll over?

    Learn about why futures contracts are often rolled over into forward month contracts prior to expiration, and understand ... Read Answer >>
  2. What is the difference between options and futures?

    An option gives the buyer the right, but not the obligation to buy or sell a certain asset at a specific price at any time ... Read Answer >>
  3. What does it mean to roll a derivative contract?

    Find out more about derivative securities, how to roll forward a derivative contract and what it means when a derivative ... Read Answer >>
  4. If I reject the tender offer for acquisition of the stock that I own in a company ...

    Since the passing of the Sarbanes-Oxley Act, a significant number of public companies have chosen to go private. The reasons ... Read Answer >>
  5. What kinds of derivatives are traded on an exchange?

    Learn about the different types of derivatives traded on exchanges, including options and futures contracts, and discover ... Read Answer >>
Hot Definitions
  1. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  2. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  3. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  4. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  5. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  6. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
Trading Center