Community Forex Questions
Forwards and futures markets
A forward contract is when two parties privately agree to buy a currency in the OTC markets at a later date at a certain price. A futures contract is a conventional agreement between two parties to deliver a currency at a set price at a later date. Futures contracts are traded on exchanges rather than OTC.
Unlike the spot market, forwards and futures markets do not trade in real currencies. Instead, a contract represents a claim to a certain currency type, a defined price per unit, and a future date for payment.
The word contract refers to a written contract between two parties that is transacted over the counter (OTC) on the forwards market. Commodities exchanges such as the Chicago Mercantile Exchange (CME) may offer futures contracts with a defined size and settlement date.
The US futures market (NFA) is governed by the National Futures Association (NFA). The minimum price increments, delivery and settlement dates, and the number of units transacted in futures contracts cannot be changed. When you trade on an exchange, your counterparty is the exchange itself.
Normally, contracts are settled for cash at the exchange in question when they expire. However, contracts may also be bought and sold before they expire. When trading currencies, currency futures and forwards markets may help mitigate risk. Speculators, as well as large multinational businesses, participate in these markets to protect themselves against potential variations in the currency rate.
Unlike the spot market, forwards and futures markets do not trade in real currencies. Instead, a contract represents a claim to a certain currency type, a defined price per unit, and a future date for payment.
The word contract refers to a written contract between two parties that is transacted over the counter (OTC) on the forwards market. Commodities exchanges such as the Chicago Mercantile Exchange (CME) may offer futures contracts with a defined size and settlement date.
The US futures market (NFA) is governed by the National Futures Association (NFA). The minimum price increments, delivery and settlement dates, and the number of units transacted in futures contracts cannot be changed. When you trade on an exchange, your counterparty is the exchange itself.
Normally, contracts are settled for cash at the exchange in question when they expire. However, contracts may also be bought and sold before they expire. When trading currencies, currency futures and forwards markets may help mitigate risk. Speculators, as well as large multinational businesses, participate in these markets to protect themselves against potential variations in the currency rate.
Forwards and futures markets are essential tools in financial trading, enabling participants to hedge against price risks or speculate on future price movements.
A forward contract is a customized agreement between two parties to buy or sell an asset at a specified price on a future date. These are traded over-the-counter (OTC), offering flexibility but carrying counterparty risk.
In contrast, a futures contract is standardized and traded on exchanges, ensuring greater liquidity and reducing counterparty risk due to clearinghouses.
Both markets are vital in commodities, currencies, and financial instruments, allowing traders to lock in prices or gain leveraged exposure. Futures are more accessible for retail traders, while forwards cater to larger institutions seeking bespoke solutions.
A forward contract is a customized agreement between two parties to buy or sell an asset at a specified price on a future date. These are traded over-the-counter (OTC), offering flexibility but carrying counterparty risk.
In contrast, a futures contract is standardized and traded on exchanges, ensuring greater liquidity and reducing counterparty risk due to clearinghouses.
Both markets are vital in commodities, currencies, and financial instruments, allowing traders to lock in prices or gain leveraged exposure. Futures are more accessible for retail traders, while forwards cater to larger institutions seeking bespoke solutions.
Apr 29, 2022 11:13