Current Delivery
Definition
Current Delivery — Meaning, Definition & Full Explanation
Current delivery is a futures contract that requires the underlying commodity or asset to be physically delivered (or cash-settled) in the current calendar month or the immediately following month, whichever comes first. This contrasts with deferred or distant futures contracts that specify delivery months further in the future. Current delivery contracts are typically the most actively traded and liquid contracts in commodity futures markets, and they carry the most immediate obligation to settle.
What is Current Delivery?
Current delivery refers to a specific category of futures contracts where settlement must occur in the nearest available delivery month. A futures contract is a standardized agreement between a buyer and seller to exchange an underlying asset—such as crude oil, gold, wheat, or natural gas—at a predetermined price on a specified future date. In current delivery contracts, that date falls within the present calendar month or the next calendar month.
The delivery month is a critical feature of any futures contract. For each commodity, exchanges designate which months are valid for delivery. For example, crude oil futures on the Multi Commodity Exchange (MCX) might trade with delivery months spanning several years into the future, but only one or two of these months qualify as "current" at any given time. Once a delivery month arrives and passes, the next month becomes current.
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Current delivery contracts are essential for price discovery in commodity markets. Traders, hedgers, and speculators actively trade these contracts because they represent the most immediate supply-demand balance. The price of current delivery futures typically reflects the spot price (the price for immediate physical delivery) plus or minus a "convenience yield" or storage costs. As expiration approaches, current delivery contracts converge toward the actual spot price of the underlying commodity.
How Current Delivery Works
Current delivery futures operate through a series of defined steps:
Contract specification: An exchange (such as MCX in India, or NYMEX globally) publishes standard contract specifications that include acceptable delivery months. At any given time, one or two months are designated as "current delivery months."
Trading period: Traders buy and sell current delivery contracts during the regular trading session. The contract trades with higher volume than distant-month contracts because it represents the nearest physical reality.
Last trading day: Each futures contract has a final trading day, typically around the 15th to 20th of the month preceding delivery. For example, if December is a delivery month, trading may cease in early November. This allows buyers and sellers who plan to take or make delivery to arrange logistics.
Notice and delivery: Once trading closes, holders of long (buy) positions must be prepared to take delivery. Those holding short (sell) positions must arrange to deliver the commodity. The exchange issues delivery notices specifying quantity, quality, and location.
Settlement: Settlement occurs either through physical delivery of the commodity at designated warehouses or delivery points, or through cash settlement (based on the spot price on the final settlement date). Most financial and some commodity futures use cash settlement; physical commodities like crude oil, gold, and agricultural products typically require actual delivery.
Transition to next month: Once the current delivery month expires, the second-nearest delivery month becomes the new current delivery contract, and trading volumes shift accordingly.
Current delivery contracts may be either deliverable (requiring physical delivery) or cash-settled, depending on the commodity and exchange rules.
Current Delivery in Indian Banking
In India, commodity futures trading is regulated by the Securities and Exchange Board of India (SEBI) for securities-based derivatives and by the Forward Markets Commission (FMC) for commodity futures—functions now consolidated under SEBI. The Multi Commodity Exchange (MCX) and the Indian Commodity Exchange (ICCX) are the primary platforms where current delivery futures trade.
The RBI does not directly oversee commodity futures, but it does regulate banks' exposure to commodity derivatives under its master circular on risk management. Banks are permitted to offer commodity futures trading accounts and derivative products to retail and institutional clients, subject to know-your-customer (KYC) and risk management guidelines.
Current delivery futures in India include contracts for crude oil, natural gas, gold, silver, copper, agricultural commodities (like turmeric, chana, and soya), and other physical commodities. The ₹-denomination of these contracts makes them accessible to Indian retail traders. Notably, MCX crude oil futures (which have a current delivery contract every month) are among India's most actively traded derivatives.
For taxation, gains and losses from current delivery futures are treated as speculative income if they are settled in the current month, or non-speculative if held longer, under the Income Tax Act. Hedgers—such as refineries, jewellers, and farmers—use current delivery contracts to lock in prices and manage commodity price risk. This is relevant to JAIIB and CAIIB syllabi under Risk Management and Market Microstructure modules.
Practical Example
Priya runs a small gold jewellery business in Mumbai. In early November, gold is trading at ₹55,000 per gram. She anticipates strong December festival sales but is worried that gold prices might rise before she can source more stock. On November 8, she buys 10 current delivery gold futures contracts (December contract) on MCX, each worth 100 grams, at ₹55,100 per gram, locking in her cost at approximately ₹5,51,00,000 for 1,000 grams.
By early December, spot gold has risen to ₹56,500 per gram, but Priya's futures lock her in at ₹55,100. As December (the current delivery month) approaches and trading in the December contract nears its end (around December 15), Priya instructs her broker to take delivery of the physical gold at MCX's designated warehouse in Mumbai. She pays the locked-in futures price and incurs warehouse handling and insurance costs of roughly ₹2,000 total. The gold is delivered within days, and she uses it to create jewellery for her December rush sales.
Priya's use of current delivery futures protected her profit margin against rising input costs.
Current Delivery vs. Deferred Futures
| Aspect | Current Delivery | Deferred Futures |
|---|---|---|
| Delivery month | Nearest month (current or next) | Multiple months ahead (e.g., 6–12 months) |
| Trading volume | Highest; most liquid | Lower; less liquid |
| Price basis | Closest to spot price; high physical demand | Includes storage, interest, and convenience yield; more volatile |
| Expiration timeline | Days to weeks away | Weeks to months away |
Current delivery futures are used by traders and hedgers needing immediate price certainty or physical settlement, while deferred futures suit those managing longer-term price risks or speculating on future supply conditions. Current delivery contracts almost always trade at a premium or discount to distant contracts, reflecting the cost of carry (storage and financing).
Key Takeaways
- Current delivery is a futures contract requiring settlement in the current calendar month or the immediately following month, whichever arrives first.
- Current delivery contracts are the most liquid and actively traded in any commodity futures market because they reflect the most immediate supply-demand reality.
- On Indian commodity exchanges like MCX, current delivery futures for crude oil, gold, and agricultural commodities trade with monthly expiration cycles.
- Trading in a current delivery contract typically closes 15–20 days before the calendar month ends, allowing buyers and sellers time to arrange physical delivery or cash settlement.
- Current delivery futures can settle either through physical delivery at designated warehouses or via cash settlement based on the final spot price.
- The difference between the current delivery price and deferred month prices (the forward curve) reflects storage costs, financing, and risk premiums.
- For tax purposes in India, current-month settlement is treated as speculative income unless held as a hedge under prescribed conditions.
- Current delivery contracts are critical tools for hedgers (refineries, jewellers, farmers) and price speculators who want immediate market exposure.
Frequently Asked Questions
Q: What is the difference between current delivery and spot delivery?
A: Spot delivery is immediate settlement, usually within 1–2 business days after the trade date. Current delivery is a futures contract, meaning the trade occurs today but settlement happens in the current or next month. Spot trading happens in the cash market; current delivery happens in the regulated futures market, with standardized contracts and margin requirements.
Q: Can I take physical delivery on a current delivery futures contract, and how much does it cost?
A: Yes, if you hold a long (buy) position until the contract's last trading day, you can take physical delivery. Costs include the futures price itself, plus warehousing fees, insurance, handling charges, and any applicable taxes. These extra costs vary by commodity and location; for MCX gold, expect ₹500–₹2,000 per 100-gram lot in total ancillary charges.
Q: How does the current delivery contract affect my credit score or borrowing capacity?
A: Current delivery futures trading does not directly affect your credit score because it is derivatives trading, not credit-