ewheat
Joined: 15 Nov 2012
Posts: 12
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 Posted: Fri Nov 16, 2012 11:40 am Post subject: What are the forwards and futures markets? |
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Unlike the spot market, the forwards and futures markets do not trade actual currencies. Instead they deal in contracts that represent claims to a certain currency type, a specific price per unit and a future date for settlement.
In the forwards market, Contracts are bought and sold OTC between two parties, who determine the terms of the agreement between themselves.
In the futures market, futures Contracts are bought and sold based upon a standard size and settlement date on public commodities markets. Futures contracts have specific details, including the number of units being traded, delivery and settlement dates, and minimum price increments that cannot be customized. The exchange acts as a counterpart to the trader, providing clearance and settlement.
Both types of contracts are binding and are typically settled for cash for the exchange in question upon expiry, although contracts can also be bought and sold before they expire. The forwards and futures markets can offer protection against risk when trading currencies. Usually, big international corporations use these markets in order to hedge against future exchange rate fluctuations, but specul ators take part in these markets as well. (For a more in-depth introduction to futures
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