A forward contract is a customized contract between two parties to buy or sell a specified quantity of a particular commodity at a specified price on a specified future date.
A forward contract is a customized contract between two parties to buy or sell a specified quantity of a particular commodity at a specified price on a specified future date. Futures are exchange-traded forward contracts, i.e., forward contracts done in organized exchanges like stock or commodity exchanges.
A futures contract is standardized. To be more specific, futures being traded on exchanges have terms standardized by the exchange. The standardized items in any futures contract are: the quantity of the underlying product; quality of the underlying product (not required in financial futures); the date and month of delivery; the units of price quotation (not the price itself) and minimum change in price (tick-size), and the location of settlement.
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By William Tan Many traders and investors dream about making consistent profit on the stock market. Typically, investors would turn to fundamental analysis for medium to long term capital gains while..
By William Tan Many traders and investors dream about making consistent profit on the stock market. Typically, investors would turn to fundamental analysis for medium to long term capital gains while..
In case of futures after a trade is confirmed by two members of the exchange, the exchange house itself becomes the counter-party, which guarantees every trade. Futures contracts are much more liquid and their price is more transparent due to the standardization and market reporting of volumes and price.
A futures contract can be reversed with any member of the exchange. If futures contracts are priced above the spot price, it is known as the Contango market. If the futures price prevails below the spot price, it is known as Backwardation.
An option to buy is known as a call option, and is usually purchased in the expectation of a rising price; an option to sell is called a put option and is bought in the expectation of a falling price or to protect a profit on an investment.
Options, like futures, allow individuals and firms to hedge against the risk of wide fluctuations in prices; they also allow speculators to gamble for large profits with limited liability. It costs nothing upfront to enter into a futures contract, whereas there is an immediate cost of entering into an option, called a premium.
Investing in options contracts can be fun and profitable
By Darren McLaughlin More and more people discover options contracts every year, and its really no wonder why. You can get a potentially larger return on options than on stocks, because options allo..
By Darren McLaughlin More and more people discover options contracts every year, and its really no wonder why. You can get a potentially larger return on options than on stocks, because options allo..
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