Define futures positions closed out through reversing trade, Financial Management

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Why are most futures positions closed out through a reversing trade rather than held to delivery?

Answer:  In forward markets, almost 90% of all contracts that are basically established result in the short making delivery to the long of the asset fundamental the contract.  This is natural since the terms of forward contracts are tailor made among the long and short.  By contrast, just about 1% of currency futures contracts result in delivery. When futures contracts are helpful for speculation and hedging, their standardized delivery dates make them not likely to correspond to the actual future dates while foreign exchange transactions will take place. So, they are usually closed out in a reversing trade.  Actually, the commission that buyers and sellers pay to transact in the futures market is a single amount which covers the round-trip transactions of initiating and closing out the position.


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