1.Spot Contract
These contracts involve buying or selling a certain quantity of product at a certain price, which will be paid at a predetermined maturity.
Thus, the contracting parties negotiate the quantity of the commodity and its value, the payment being made immediately or after a short period of time.
These contracts are characterized by simplicity, speed, liquidity and low spreads. Trading spots involves requires small accounts, brokers often providing free news and statistics.
In this course, we will focus especially on this type of FOREX contracts.
SPOT = type of FOREX Contract, where:
- the quantity of goods isnegotiated
- the priceisnegotiated
- the delivery time is standardized
- maturity -immediate/short
2. Options
Options are financial instrumentsconsisting of contracts which offer to their beneficiary the option(not the obligation)to sell or buy in certain goods at a predetermined price. The option to buy or sell has a predetermined maturity.
If the beneficiary sells the option, he/shebecomes obligated to buy or sell the asset/commodity at maturity.
Options can be traded on markets such as the Chicago Mercantile Exchange, the International Securities Exchange, the Philadelphia Stock Exchange.
Option contracts also have some drawbacks: they canbe traded on specific timetables and their liquidity is lower compared to spot and futures.
3. Futures
Futures involve the obligation to buy or sell a certain good, at a certain price, at a certain maturity.
Futures contracts were initiated by Chicago Mercantile Exchange in 1972 and they had a custom structure.
Being traded in a centralized framework, they evolve transparentlyand have a rigorous regulation, meaning that information and news related to them are easy to access.
4. Exchange Trade Funds
These instruments are among the most recently emerging, being created and administered by financial institutions that buy currencies and place them in funds, then these list shares over these funds.
The funds may contain a single currency or a basket of currencies.
The shareholder has the right to trade them like acompany's shares.
ETFs can be traded within specific timetables and trades involve some costs.
On the other hand, they imply lower risk and administration costs than common shares trades or mutual investment funds.
