What percentage of futures contracts are typically closed out before the actual delivery date?

The assertion that 99% of futures contracts are typically closed out before the actual delivery date reflects a fundamental characteristic of futures trading. Most market participants engage in these contracts not with the intention of physical delivery of the underlying asset, but rather for speculation or hedging purposes.

The primary purpose of trading futures contracts is often to capitalize on price movements or to mitigate risks associated with price fluctuations of the underlying asset. Traders can easily close out their positions by entering an offsetting transaction, which allows them to realize gains or losses without taking delivery of the asset itself. As a result, a vast majority of futures contracts are settled financially, rather than through the physical transfer of goods.

In practice, this phenomenon leads to a very high percentage of contracts being closed out well before the delivery date. This streamlining of trading activities supports liquidity in the futures markets, making it easier for individuals and institutions to enter and exit positions without being burdened by the logistical challenges associated with actual delivery. Thus, the figure of 99% accurately captures the prevalent trend in futures trading, underscoring the focus on speculative and hedging strategies rather than physical ownership of the commodities.