Can someone explain to me how commodities and futures/ options on commodities actually works? What happens if I hold a contract to maturity? Do I get a phone call asking when I'm going to pick up my 2000 barrels of oil and 3 tons of corn?
Who actually ends up with the commodities and how?
Pretty much. I held my contract for 500,000 dragon d****** to maturity and now my whole house is decorated with the stuff. Luckily I live in SF so its the most progressive house on the block ;)
>Do I get a phone call asking when I'm going to pick up my 2000 barrels of oil and 3 tons of corn?
No. Your brokerage will qualify you and make you post "margin" at vastly higher amounts until you say fuck it and get out of your position.
To take delivery (or make it) you have to sign agreements and prove you have the capacity to take or make delivery at approved points.
Other than that do research via Google on "commodity markets" and you will learn what you need to learn, Grasshopper.
So what happens to the commodities with all these home traders when they get into a bad position that nobody wants to buy? They forfeit their margin to the person selling the physical commodity, and that entity is free to resell it?
Here's the serious answer: commodities futures are cash settled except on OTC markets. You would get paid in cash the difference between the spot and futures price. Individual investors can't buy physically settled commodities.
most retail brokerages won't let you get to expiry holding open positions
on the off chance you do then you're going to have to pay some fees either buying or selling on the underlying physical commodity - you don't have to take delivery of anything in reality - it can simply be a case of ownership of some commodity stored in an exchange approved warehouse being transfered