So I can see how a bond will default if the government/company runs out of money and cant make good on a loan.
I can see how a stockholder will get screwed if the company goes bankrupt and has to liquidate
But is it realistically probable in the real world that someone won’t make good on a futures contract? And if so, why?
Say for example that there’s 3 parties (investor, bank, farmer). You’re the investor and I’m making these contracts at the Barclays bank. You believe that corn is going to increase in value, so you want to lock in today’s price. My farmer friend is selling corn for $100 per bag.
You the investor goes long on the corn contract, expecting to buy the corn at $100 per bag 90 days from today. I help write the contract. Am I on the hook for delivering the corn, or is the farmer?
90 days rolls past and the price of corn is $110. You phone me to cash in on your profit. The farmer says “I’m not selling my corn at these prices, punk”. Is that how default risk plays out? Or is the risk on Barclays, that now I have to give $10 profit to you?
If so, who gets hurt? What’s the punishment? Does Barclays go after the farmer in court, or do you go after them in court, or does Barclays put the farmer on some blacklist? How’s this play out?