I'm confused about how payment for futures contracts works if one sells before expiry. Consider the following scenario with a contract for delivery of good X:
- A sells a futures contract to B for $50
- Later B sells the same futures contract to C for $60
- C holds the futures contract until expiry when they collect good X
My questions are:
I assume A delivers X for $50. However, the contract is now held by C who bought it at $60. Who delivers to C for $60? Who receives from A for $50?
A way that I can envision the market working is as follows: At expiry A sells X to B for $50, B sells X to C for $60. Thus everyone gets their "correct" price/good. However, clearly people make PnL before expiry. Where does this PnL come from? No goods/money has changed hands yet, so how can B immediately collect their $10 of profit before expiry, when they sell their contract?