What is the difference between foreign exchange futures contracts and foreign exchange forward contracts
1 , Different market nature
Foreign exchange futures contracts are traded in centralized markets (exchanges), while foreign exchange forward contracts are traded in over-the-counter markets (bank counters) )conduct.
2. Different expiration dates
Foreign exchange futures contracts have standardized expiration months, The date is set, and the expiration period of the foreign exchange forward contract is customized according to the needs of the customer, usually within one year.
3. Prices are determined in different ways
The price of foreign exchange futures contracts is determined through Achieved through the open outcry process on the exchange or electronic trading system. The buying and selling prices of foreign exchange forward contracts are determined by dealers in the wholesale market after considering the difference between spot exchange rates and interest rates.
4. Different ways to prevent default
The credit risk of foreign exchange futures contracts to customers Control relies on margin requirements and daily evaluation systems to prevent the occurrence of default events. There are no margin requirements for foreign exchange forward contracts, but banks will conduct credit checks on customers or only provide forward contracts to customers with good long-term relationships.
5. Different delivery methods
The settlement of foreign exchange futures contract positions is rarely done in kind. Delivery is mostly done in cash; almost all foreign exchange forward contracts are delivered in physical form.
6. Different transaction costs
The transaction cost of foreign exchange futures contracts is commission, while the transaction cost of foreign exchange futures contracts is commission. FarAlthough there is no commission for futures contracts, the bid-ask spread is actually some form of "commission" received by the bank.
7. The length of trading time is different
Foreign exchange futures contracts are set on the exchange trading during business hours. Foreign exchange forward contract transactions are completed through the bank's global network connection system, so it can be said to be traded 24 hours a day.
Related knowledge: Main features of foreign exchange futures contracts
1 . Foreign exchange futures trading is a contract traded through centralized public bidding on the exchange. Usually the trading place is fixed and the trading time is limited.
2. Foreign exchange futures contracts are standardized contracts.
3. Foreign exchange futures contracts implement a margin system.
Everyone will understand this issue after reading it. In practice, we need to have a certain understanding of these two contracts, which is beneficial to both parties. It is very important content. When signing this type of contract, everyone must read the specific terms clearly so that they can be protected. If you have any other questions, please feel free to consult the professional lawyers on the Legal Savior Network.
