What is the 'Delivery Price'

The delivery price is the price at which one party agrees to deliver the underlying commodity and at which the counter-party agrees to accept delivery. The delivery price is defined in a futures contract traded on a registered exchange or in an over-the-counter forward agreement. The delivery price is set in advance in the contract. It is agreed on the day the futures or forward contract is entered, not on the day in the future when the commodity is actually delivered. Delivery price can also refer to a stock's selling price in options contracts.

BREAKING DOWN 'Delivery Price'

In forward contracts, the forward price and the delivery price are identical when the contract begins, but as time passes, the forward price will fluctuate and the delivery price will remain constant. Also, underlying assets typically are not actually delivered, but rather closed out with offsetting contracts. Another possibility is that a delivery instrument representing the underlying asset, such as a warehouse receipt, will be transferred instead of the actual commodity. If the commodity is physically delivered, the cost of delivery will affect the contract's delivery price.

The concept of the delivery price is an important one because it is set on the day the contract is entered and does not fluctuate for the duration of the contract. Other prices such as the cash price (or spot price) of the commodity or the price to enter or exit a new futures or forward contract do change. Futures contracts are standardized instruments whose gains or losses are marked-to-market daily. Prices are adjusted at the end of each trading day based on the settlement price. The delivery price, however, remains unchanged because it is written into the contract when the contract begins.

RELATED TERMS
  1. Physical Delivery

    Physical delivery is a term in an options or futures contract ...
  2. Delivery Point

    The delivery point is the place specified in futures contracts ...
  3. Approved Delivery Facility

    Approved delivery facility is a location authorized by an exchange ...
  4. Delivery Month

    Delivery month is the month stipulated for delivery of the underlying ...
  5. Delivery

    Delivery is the transfer of a commodity, security or financial ...
  6. Full Carry

    Full carry occurs when when the later delivery futures contract ...
Related Articles
  1. Investing

    Commodity Investing 101

    From the orange juice we drink to the gas we use to power our vehicles and heat our homes, commodities play important roles in our daily lives.
  2. Investing

    Currency Futures: An Introduction

    Find out why forex market is not the only way for investors and traders to participate in foreign exchange.
  3. Investing

    Fueling Futures In The Energy Market

    The energy market influences every aspect of our lives, and these four options are its driving force.
  4. 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.
RELATED FAQS
  1. Why is the initial value of a forward contract set to zero?

    Forward contracts do not require early payment or down payment since no money changes hands at the initial agreement, so ... 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 do I set a strike price for a future?

    Find out why futures contracts don't have set strike prices like options or other derivatives, even though price change limits ... Read Answer >>
Trading Center