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Contract grades establish the status of a futures contract based on a deliverable product, ensuring investors get what they pay for. These grades are set by government regulations and commodity exchanges, and may change due to availability, political, or environmental factors.
Contract grades are standards that are associated with various types of commodity investment situations. Essentially, contract qualification helps establish the status of a futures contract based on a product determined to be deliverable within the terms outlined in the contract. Contractual ratings help ensure that investors trading in products get what they pay for.
Contract grades or standards are usually set on two fronts. First, the government of jurisdiction where the particular commodity exchange is located will provide relatively broad rules and regulations that apply to any commodity traded on the market. In addition, the actual market or exchange will also have some information about whether or not a commodity offering meets the trading standards set forth by the exchange. In both cases, the intent of the laws and regulations is to establish contract grades that are reasonable, help represent the underlying value of the commodity realistically to potential investors, and generally ensure that all transactions are conducted with honesty and integrity.
In some markets, contractual ratings are known as deliverable ratings. This designation reflects the fact that the standards established for the products must be of a nature that ensures that the investor receives a final product that is at least as good as stated in the original futures contract. In the event that the deliverable rating does not meet the terms of the contract for any reason, there are usually some mechanisms that can be employed to reverse the transaction.
While contractual ratings tend to be consistent, they are subject to change from time to time. Factors such as a change in the availability of the merchandise can affect contract qualifications, as well as political and environmental factors that can inhibit or stimulate the creation of the merchandise. However, both government regulations and commodity exchange rules generally tend to amend contract grades in a way that still keeps the investor apprised of the current status of any commodity, making it easier to determine if investing in the commodity is right. viable or not. No.
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