A futures transaction always has two parties, a buyer and a seller, and you can enter the market either way. If you buy a contract, you take a
long position
and are called the long. If you sell a contract, you take a
short position
and are called the short. Further, in the futures market, every contract
has an equal number of long and short positions.
To liquidate and leave the futures market, you need to cancel your existing futures position either by offsetting your contract with a matching futures contract on the opposite side of the market, or by delivering or taking delivery of the commodity or its cash value. Long positions are offset by short positions, and short positions by long ones. For example, if you have a long position on 5,000 bushels of soybeans deliverable in January, you need to short — or enter a contract to sell — 5,000 bushels of soybeans deliverable in January or expect to have the 5,000 bushels delivered to your doorstep.
This obligation differs from the terms of an
options contract
you buy, which you may allow to expire unexercised. But it resembles what happens when you sell an options contract and must offset or fulfill your part of the bargain.
It's nothing personal
Futures are interchangeable contracts that trade on formal exchanges. This means that you don't have to find the person who was on the other side of your original futures contract to leave the market. When you give an order to offset an existing futures position, the sale or purchase is handled by traders on the exchange and then cleared through the futures clearinghouse, which becomes the buyer for every futures contract seller and the seller to every futures contract buyer.
Open interest
When you buy or sell a futures contract, you open a position in the futures market. To close the position you buy an offsetting contract. The number of contracts that have been opened in the market but not yet closed by offset or delivery is called the open interest. When a futures contract expires its open interest becomes zero.
