Warehouse Receipt

A warehouse receipt is a type of documentation used in the futures markets to guarantee the quantity and quality of a particular commodity being stored within an approved facility. Warehouse receipts are important because they serve as proof that the commodity is in the warehouse and that the proper documentation has been verified. Commodities need to meet specific quality standards in order to be traded as a futures contract, and the warehouse receipts play a role in verifying that the necessary requirements have been met.

Warehouse receipts are a part of the operational business processing involved with futures contracts for physical delivery. A futures contract is an obligation to buy or sell a commodity or security at a predetermined price at a date in the future. Futures are derivatives because they derive their value from the price of the underlying security or commodity. There are many types of commodity futures, including corn, wheat, oil, gold, and silver. Futures contracts are standardized, meaning they have a set quantity and are deliverable by certain dates throughout the year.

However, futures also have quality standards that must be met and warehouse receipts play a role in the inventory and delivery process of the underlying commodity for the contract. For a commodity to be delivered, to satisfy a futures contract, there must be a warehouse receipt for the goods. Sometimes, instead of the physical delivery of the actual commodities backing a contract, warehouse receipts can be used to settle futures contracts. For precious metals, warehouse receipts may also be referred to as vault receipts.

Futures contracts are broadly used by all types of companies manufacturing and transporting various types of goods. Some of the most popular futures exchanges include the Chicago Mercantile Exchange (CME), Chicago Board of Trade (CBOT), New York Mercantile Exchange (NYMEX), and the New York Board of Trade (NYBOT). Futures exchanges are used by buyers and sellers to hedge–or protect themselves from–the price volatility of all types of commodities. In some cases, traders may use the futures market to speculate and profit from arbitrage opportunities.

However, the majority of trades made on futures exchanges are done by commercial traders who seek to either sell or buy commodities for physical delivery. Commodities for physical delivery are used to produce and manufacture a wide range of goods that comprise a large portion of the U.S economy’s gross domestic product (GDP). GDP is a measurement of economic growth in an economy.

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