V4.208 Transactions in commodities

This paragraph examines the zero-rating that applies to certain transactions in commodities under SI 1973/173 (The Terminal Markets Order).

Types of commodity transactions—dealings on terminal markets (zero-rating)

A detailed account of commodity transactions is outside the scope of this work, and the following brief account of three particular forms of contract is given by way of a general background to the legislation described below.

Spot transactions

Goods may be sold for immediate delivery under a 'spot' transaction. This is known as actual physical trading, and the contracts are referred to as 'actuals' or 'physicals'. Actuals must be fully paid for, and are thus more likely to be entered into for trading purposes than for investment.

Forward contracts

Goods may be traded under a 'forward' contract, which is referred to as a 'future' and is essentially a mechanism to protect against price fluctuations in the future. It is an agreement to buy or sell a set quantity (or 'lot') of a commodity at a fixed price at a certain date or month in the future known as the 'terminal date'. A deposit (normally 10% of the contract commitment) is paid on such a contract. Futures can be traded on the commodity markets; thus the person who takes delivery of the goods is not necessarily the same person who enters into the original contract and, in many cases, physical delivery does not take place because the contract is 'closed out'.


There is a market in options. An option is the right to buy or

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