What is a Minimum Price Contract?
A minimum price contract is a futures contract with a price floor.
How Does a Minimum Price Contract Work?
A minimum price contract has a provision that places a lower limit on the price of a futures contract's underlying asset. For example, a minimum price contract on gold may state that regardless of market price movements, the buyer may not pay the seller less than $800 per ounce.
Why Does a Minimum Price Contract Matter?
Minimum price contracts protect the seller from losses due to erratic price behavior at the time the contract expires.