Question

With regard to a futures contract, the long position is held by__________a. the trader who bought the contract at the largest discount. b. the trader who has to travel the farthest distance to deliver the commodity. c. the trader who plans to hold the contract open for the lengthiest time period. d. the trader who commits to purchasing the commodity on the delivery date. e. the trader who commits to delivering the commodity on the delivery date.

Answer 1

Answer: D. the trader who commits to purchasing the commodity on the delivery date.

Explanation: futures are agreements to buy or sell a raw material or commodities at a specific date (delivery date) in the future at a particular price. That means they're obligated to buy or sell the underlying asset at the delivery date. The long position is held be a trader who commits (enters into a contract) to purchase the commodity on the delivery date. This is because they believe that the price of the commodity is poised to turn upwards. On that day, the trader is obligated to purchase the commodity from the supplier at the agreed contract price whether the prevailing is up or down. The supplier, is in turn, obligated to deliver the commodity on the same day.