Legal Definitions - time-bargain

A time-bargain, also commonly known as a futures contract, is a legal agreement between two parties to buy or sell a specific asset at a predetermined price on a future date. Both parties are obligated to fulfill the contract on the agreed-upon date, regardless of the market price of the asset at that time. These contracts are often used to manage risk (hedging) or to speculate on the future price movements of commodities, financial instruments, or other assets.

Here are some examples to illustrate a time-bargain:

• Example 1: Agricultural Commodity

  A large bakery chain anticipates needing a significant amount of wheat in six months to produce its bread. To protect itself from potential price increases, the bakery enters into a time-bargain with a wheat farmer. They agree today that the bakery will buy 10,000 bushels of wheat from the farmer in six months for a price of $7.00 per bushel. This is a time-bargain because both parties are committed: the farmer must deliver the wheat, and the bakery must purchase it at the agreed price, even if the market price for wheat in six months is higher or lower than $7.00.

• Example 2: Energy Resources

  An international shipping company relies heavily on bunker fuel for its fleet. Concerned about the volatility of oil prices, the company enters into a time-bargain with an energy supplier. They agree that in three months, the shipping company will purchase 50,000 barrels of fuel at a fixed price of $80 per barrel. This arrangement allows the shipping company to budget its fuel costs with certainty, and the energy supplier secures a sale. Regardless of whether the market price for fuel rises to $90 or falls to $70 in three months, the transaction will occur at $80 per barrel as per the time-bargain.

• Example 3: Financial Index

  An investment fund manager believes that a particular stock market index, like the S&P 500, will increase significantly over the next quarter. To capitalize on this belief without buying all the individual stocks, the fund manager enters into a time-bargain to buy a futures contract on the S&P 500 index at a specific price, to be settled in three months. If the index rises above that price by the settlement date, the fund profits. If it falls, the fund incurs a loss. This is a time-bargain because it's a binding agreement to transact based on the index's value at a future date, at a price determined today.