Understanding the Hedge to Arrive Contract in Futures Trading
Definition & Meaning
A hedge to arrive contract (HTA) is a type of forward contract commonly used in futures trading. In this agreement, the price of the futures contract is set when the contract is created, but the basis level"the difference between the cash price and the futures price"is determined later, typically just before delivery. This arrangement allows farmers to secure a price for their crops while transferring the risk of price fluctuations to the buyer.
Legal Use & context
Hedge to arrive contracts are primarily used in agricultural and commodity trading contexts. They are relevant in various legal areas, including contract law and commercial law. Users can manage HTA contracts through legal templates offered by services like US Legal Forms, which are designed by qualified attorneys to ensure compliance with applicable regulations.
Real-world examples
Here are a couple of examples of abatement:
Example 1: A farmer enters into an HTA contract to sell 1,000 bushels of corn at a price linked to the futures market. When the delivery date approaches, the basis level is established based on current market conditions.
Example 2: A grain elevator operator uses an HTA contract to hedge against potential price drops, ensuring they can purchase grain at a predetermined price, thus stabilizing their costs. (hypothetical example)