Forward contract refers to a transaction in which both parties agree to buy and sell a certain amount of financial assets at a certain price at a certain time in the future. Forward contracts have the functions of hedging and speculative profit.

2. Futures contracts

A futures contract is also an agreement between buyers and sellers to conduct transactions at some time in the future. However, unlike forward trading, futures contract is an on-site transaction and a standardized contract. To a large extent, it is the trading of futures contracts, and the margin trading is implemented.

3. Option contract

Option trading is the right of the buyer to buy and sell the agreed financial assets to the seller at the agreed price and quantity within the specified period. According to its nature, it can be divided into call option and put option.

4. Swap contracts

Swap contract refers to a financial transaction contract in which two or more parties deliver a series of money within an agreed time according to the agreed conditions. Mainly including currency swap and interest rate swap.

Second, the main functions of financial derivatives

1. Hedging

Hedging, also known as hedging transaction, is to apply futures contracts to commodity transactions in the spot market for hedging. Both sides invest in the spot market and futures market, but trade in reverse, using the profit of one market to make up for the loss of the other market.

Looking for price

The price of futures trading is generated by public bidding, and all the factors that affect the price change can be reflected in an open and free competitive market. The price formation mechanism such as futures market can accurately reflect the supply and demand of a commodity in the spot market and its future changing trend. Therefore, futures prices have the characteristics of authenticity and predictability.

3. Profit from speculation

Speculation is a trading behavior that uses the price difference in the market to buy and sell and gain profits from it. Ordinary investors earn the price difference of contract fluctuation by buying and selling derivative contracts frequently.