The foreign exchange market is a very large market with many advantages, financial derivative instruments, different features, and pitfalls. In trading currency future (also known as foreign exchange future), forex investors may engage as well as trade-in spot forex market.
The underlying currency is physically exchanged in the spot forex following the settlement date. And a futures market is a legally binding contract to trade a particular amount of currency pair, that obligates the involved parties.
So they have the main differences which is when the physical exchange of the currency pair takes place and when the trading price is determined. You can know these further by cooperating with the best forex broker.
Introducing to Spot Market
The spot market is also known as the physical market or cash market. Is a financial market on which financial or commodities are sold for cash and delivered immediately. The spot market can be an exchange, an organized market, or over-the-counter.
The opposite of the futures market is the physical market which is one of the financial derivative instruments where the delivery and the settlement are due to a later date. Contract sold and bought on the cash market become effective instantly.
and within two business days after the trade order was placed, the delivery should be made. Int the spot market, participants use it to physically sell and purchase goods. It means that here, a large part of players are actually producers or farmers.
They need to restock their inventories and so on. Through the spot market, investors who would like to acquire shares of a company also purchase them. For example, you want to buy certain company stocks, and immediately own them.
If the company has met the requirements to be listed here, you would go to the U.S. stock exchange or other exchange. You can still buy them for cash if the corporation’s shares would be traded over-the-counter.
You could go to exchange cash and a coin dealer for gold if you like to purchase gold in the spot market. Most of the speculative forex trading are executed on online trading platforms provided by the different best forex broker.
Knowing More about Futures Market
On the other hand, the futures market is a centralized financial exchange. It standardized futures contact are being traded, according to a comodity or other instrument’s certain amount must be delivered at a specific time in the future.
One of the categories of financial derivative instruments is the futures which are based on price movements depends and an underlying asset, but not solely, on the commodity, pricing of the underlying stock, index, currency pair, et cetera.
When we speak about this contract, the keyword is standardized. The contract between two counterparts to sell or buy a standardized quantity of a specific asset, this is a future contract. The specific asset is set today of standardized quality.
You are not necessarily obligated to physically deliver or receive large stockpiles of commodities, such as oil, gold, corn, copper, et cetera, by holding futures contract. To speculate whether price oil goes down or up, is primarily why traders enter futures market.
Or to hedge risk. We can say, we can conclude that a futures contract which is one of financial derivative instruments is unlike the actual farmers, producers, et cetera who trade in the spot market, and more like a financial position. Speculators are most of the players in the future market. neither the buyer, nor seller are obligated to deliver or receive the number of commodities traded.
This is why futures have become a major part of the financial markets. There are many parts of derivative instruments such as option, et cetera. trade in financial market such as the forex market is not so hard but not as easy as you imagine. Trade with didimax forex broker to get your goal and learn financial derivative instruments.
