DEFINITION of 'Delivery Instrument'

A document given to the holder of a futures contact that may be exchanged for the underlying asset when the future contract expires. In simple terms, a delivery instrument is a receipt. Because many futures contracts involve produce and other items of bulk, delivery instruments are generally preferred to the actual asset.

BREAKING DOWN 'Delivery Instrument'

In addition to the problems associated with shipping bulk items, delivery instruments can also save money for the parties involved. This is because many futures contacts are sold before they expire. Of course, if the seller also possessed the underlying assets, he or she would need to make arrangements to ship them to the new buyer, costing the shipper money that could have been saved had the assets not been physically held in the first place.

Delivery instruments can include warehouse receipts, shipping certificates and vault receipts. These all are more transferable than physical commodities and provide investors with a more efficient method of settlement.

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