Actuals (Commodities) – Definition

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Actuals (Commodities) Definition

Actuals refer to homogenous commodities that form the basis of future trade. Actuals may be any commodity, however, the most common include natural gas, crude oil, gold, and diamonds among others. Note that actuals may be traded on the physical market for immediate delivery. Better still, it can also be traded on the futures market where delivery is done at the end of the contract.

A Little More on What are Actuals (as Commodities)

Generally, actuals can be said to be commodities traded through contracts. This happens when two business dealers decide to be part of an exchange-traded contract. In this type of contract, one of the dealers agrees to supply a given amount and quality of a certain commodity as agreed.

On the other hand, the other business dealer agrees to buy the commodity. Note that actuals’ physical delivery may be evaded via cash settlement. This is done when the business dealers who are involved in the contract decide to engage in selling their position before the commodity is actually delivered.

Actuals Versus the Buyer’s Intent

The materialization of the contract’s actuals is highly dependent on the intent of the buyer. The buyers, in this case, are raw material users such as the manufacturers, processors, refineries, etc. Note that these are usually traded on futures markets. In this kind of trade, buyers usually become part of the contract with the intention of receiving the commodities.

This is to ensure that they have enough stocks to enable them to continue with their operations. These buyers are also the actuals’ end users. They can, therefore, make use of the contract’s settlement version to safeguard the contracts they have traded in the non-exchange physical market.

However, there are also other traders as well as investors in the futures market who have no do not intend to take deliveries. In this case, they have no interest in the actual past the existing pricing trends. This is because they hope to profit throughout the trade.

How Actuals Works in the Physical Market 

Actuals can be traded in both physical and futures markets. Normally two trading usually parties enter into an agreement to enter a business contract. The contract normally involves the exchange of a commodity for money or another commodity. Note that the actual trade involves a signed purchasing contract.

Therefore, it is considered a breach of contract should there be a failure to deliver the commodities. The contract is binding and so, any breach of this contract is likely to lead to legal action.

In addition, as a signed purchasing contract, actuals usually have specifications about the quantity and the quality of the commodity being exchanged. The specifications are there to ensure that parties are clear and satisfied with the whole purchasing process.

Key Takeaways

  • Actuals refer to homogenous commodities that form the basis of future trade.
  • Actuals may be traded on both the physical as well as in the future markets.
  • The materialization of the contract’s actuals is highly dependent on the intent of the buyer.
  • The actual trade involves a signed purchasing contract that may lead to legal action should any of the parties fail to honor the contract (breach the contract).

Reference for “Actuals”

https://www.investopedia.com/terms/a/actual.asp

https://en.wiktionary.org/wiki/actuals

https://www.ldoceonline.com/dictionary/actuals

www.businessdictionary.com/definition/actuals.html

https://www.collinsdictionary.com/dictionary/english/actuals

Academics research on “Actuals”

Forecasts and actuals: The trade-off between timeliness and accuracy, McNees, S. K. (1989). Forecasts and actuals: The trade-off between timeliness and accuracy. International Journal of Forecasting, 5(3), 409-416. The process of estimating GNP starts with forecasts made years before a quarter has begun and continues for years after it has ended as preliminary estimates are repeatedly revised. Earlier estimates can be more useful to decisionmakers even though later estimates, based on more information, tend to be more reliable. This article documents the trade-off between the timeliness and accuracy of alternative estimates. It concludes that the preliminary estimate of nominal and real GNP, available about 15 days after a quarter has ended, is overrated in that it is less accurate than later estimates and no more reliable than the flash estimate made 15 days before the quarter has ended.

Short hedging and long hedging in futures markets: symmetry and asymmetry, Yamey, B. S. (1971). Short hedging and long hedging in futures markets: symmetry and asymmetry. The Journal of Law and Economics, 14(2), 413-434.

International commodity agreements: shadow and substance, MacBean, A., & Nguyen, D. T. (1987). International commodity agreements: shadow and substance. World Development, 15(5), 575-590. The rationale for intervention is that markets produce excessive price fluctuations causing micro and macroeconomic damage. Theoretical arguments for price stabilization are reviewed. The links with other objectives are discussed and reasons why ultimate objectives such as income stabilization may not be achieved are set out. The paper points out how actual agreements have been far from ideal because of political and practical problems. The sheer technical difficulties of operating a buffer stock are demonstrated by a simulation experiment which traces the reactions to exogenous shocks with and without the interventions of the buffer stock.

Futures markets: A consequence of risk aversion or transactions costs?, Williams, J. (1987). Futures markets: A consequence of risk aversion or transactions costs?. Journal of Political Economy, 95(5), 1000-1023.

The origins of futures markets, Williams, J. C. (1982). The origins of futures markets. Agricultural History, 56(1), 306.

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