In this article, We learn about “Contract “.Let’s Go!
In trading, a “ contract ” usually refers to a standardized agreement between two parties to buy or sell a specific asset at a predetermined price and time.
The term is most commonly associated with the futures, options, and contracts for difference (CFD) markets, although it can refer to other types of financial agreements as well.
Let’s take a closer look at the background of futures, options and CFDs:
What is a futures contract?
This is a legal agreement to buy or sell a specific commodity or financial instrument at a predetermined price at a specified time in the future.
The buyer of a futures contract assumes the obligation to purchase and receive the underlying asset when the futures contract expires. Instead, the seller agrees to deliver the asset on the maturity date.
What is an options contract?
This is a derivatives contract that gives the buyer of the contract the right, but not the obligation, to buy or sell an underlying asset at a specified price within a specified time period.
On the other hand, if the buyer chooses to exercise the option, the seller (or writer) of the option is obliged to sell or buy the asset.
What is a Contract for Difference (CFD)?
CFDs are a type of financial derivative that allow traders to speculate on rising or falling prices in rapidly changing global financial markets such as foreign exchange, indices, commodities, stocks and treasuries.
In CFDs, the buyer pays the seller the difference between the current value of the asset and its value at the time of the contract, and vice versa, if the difference is positive.
The key point with CFDs is that you never actually own the underlying asset, you are only guessing at price changes.
Each contract has terms that specify the amount of asset to be delivered or purchased, the price at which the asset is purchased or sold, the date of the transaction, and the method of delivery (for futures).
Futures and futures contracts are often traded on exchanges, which standardize the terms of the contracts to facilitate trading.
Contract trading allows traders to speculate on the price changes of underlying assets, and also provides a way to hedge against price changes
If you want to learn more foreign exchange trading knowledge, please click: Trading Education.
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