Forex Trading Daily Forecast EUR/USD

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FUTURES CONTRACTS

Futures-contractsA futures contract is a type of derivative instrument, or financial contract, in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price. If you buy a futures contract, you are basically agreeing to buy something that a seller has not yet produced for a set price.But participating in the futures market does not necessarily mean that you will be responsible for receiving or delivering large inventories of physical commodities – this is the main difference compared to options. Futures contracts are contractual agreements, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash . In most of the cases parties on the market do not hold futures until final settlement date. They sell them before the period or try to buy if they shorten them. Main futures instruments can be currency, indexes, metals, oil, interests, etc. The futures contract may be bought and sold either for risk management purposes (hedging) or for the purpose of potential profit by being correct on movements in the market (speculation).

This contrasts with options trading, in which the option buyer may choose whether or not to exercise the option by the options exercise date.. Hedging using futures and options are very good short-term risk-minimizing strategy for long -term traders and investors. Successful hedging gives the trader protection against commodity price changes, inflation, currency exchange rate changes, interest rate changes, etc.The only aim of speculation is to lock the profit taking into consideration the price alteration. They are financial institutions, traders , hedge funds, etc. the advantages if this kind of  the market are relevantly low rates of commission    and big  leverage  which could be successfully use when positioned. But on the other hand the capacity of the contracts is relevantly large for small traders (1000 barrels of oil, 10 tones cocoa etc.) Another disadvantage is that trade is limited in accordance with the working hours of the corresponding stock exchange. Thus to trade with futures you must  have an account to a broker  who offer such a service .The requirements need margin variant  depending on the stock-broker as well as  the real physical delivery of the assets . For futures the price paid at the delivery should be equal to the price at which the asset is bought (including the interest) plus the storage expenses. Thus the effective price is in fact the expected future price discounted by no –risk norm of   recovery.

On condition that we observe perfect market the connection between futures and spot prices depends on storage expenses, period, dividends, interests and some other similar conditions. Actually the prices of the futures render an account of total information that influenced markets. Prices are constantly changed depending on factors such as war conflicts, political crises and so on. Futures provide the trade an opportunity to use a great number of markets and practice complex instrument using large leverage which enables the traders to realize profits but at a considerable risk of losses.

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