Futures:
Futures are financial contracts obligating the buyer to purchase, or the seller to sell, an asset at a predetermined price on a specific future date. These contracts are standardized and traded on exchanges, covering various assets such as stocks, indices, commodities, and currencies.
Futures serve two main purposes:
With features like leverage, liquidity, and transparent pricing, futures are a versatile tool for both risk management and investment strategies.
Options:
Options are financial derivatives that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specific time frame. These contracts come in two types:
Options are widely used for:
Options provide flexibility, enabling investors to manage risk or capitalize on market opportunities effectively.
Swaps:
Swaps are financial agreements between two parties to exchange cash flows or liabilities from different financial instruments. The most common types of swaps are:
Swaps are primarily used for:
Swaps are custom contracts traded over-the-counter (OTC), tailored to meet the specific needs of the parties involved.
Forwards:
Forwards are customized financial contracts between two parties to buy or sell an asset at a predetermined price on a specific future date. Unlike futures, forwards are traded over-the-counter (OTC) and are tailored to meet the needs of the parties involved.
Forwards are commonly used for:
While forwards offer flexibility, they also carry counterparty risk since they are not standardized or traded on an exchange..
