2. Contract standardization. Financial futures contracts are standardized contracts that meet the requirements of the exchange, and there are strict and detailed regulations on the quality, quantity, maturity date and trading time of financial commodities to be traded, while forward contracts are decided by both parties, and there are no fixed specifications and standards. ?
3. Margin and daily settlement. Financial forward contract transactions usually do not pay margin, and profits and losses are settled after the contract expires. For financial futures trading, a deposit of 5% ~ 10% of the contract amount must be paid before the transaction, which will be settled by the settlement company daily. ?
4. End of position. Financial forward transaction is an agreement reached by both parties according to their own needs, so the price, quantity and term are not standardized. If one party breaches the contract halfway, it is usually difficult to find a third party to take over the rights and obligations unconditionally. Therefore, the breaching party can only provide additional preferential conditions to terminate the contract or find a third party to take over the original rights and obligations. ?
5. Participants in the transaction. Most participants in financial forward contracts are professional producers, traders and financial institutions. Financial futures trading has more public significance, and the participants can be banks, companies, financial institutions or individuals.
The first thing you need to know is the two trading methods of financial products, exchange and OTC. Take the exchange as an example. All people who want to trade place orders and trade on a central platform, such as Nasdaq, new york Stock Exchange and Chicago Board Options Exchange, which all belong to this category. In OTC words, for example, a trader wants to buy a corporate bond. He calls his broker and asks if anyone just wants to sell the bond. In other words, this is a completely peer-to-peer transaction, and there is no centralized trading place.
Compared with the two methods, the biggest advantage of the exchange is liquidity)-because everyone places orders in a centralized place, it is easier for buyers and sellers to find each other to facilitate the transaction. In addition to liquidity, exchange also reduces the risk of counterparties. For the OTC market, liquidity and counterparty risk are its weaknesses, while its strength is product customization. As only buyers and sellers participate in the transaction, as long as both parties agree, the traded financial products can carry various common or unusual terms, which makes the products very irregular. With the above background, let's look at your specific problems now.
Standardization refers to whether the parameters of a product are standardized. Liquidity is an important factor for the success of financial products. However, in some cases, traders may only need to buy and sell some "futures" with special terms. In this case, because this special "futures" does not meet the requirements of ordinary exchanges for futures, traders can only find an intermediary to conduct OTC transactions, that is, forward contracts. So standardization has advantages and disadvantages, depending on the specific needs.
2. The risk here should mainly refer to the credit risk of the counterparty, not the market risk. In other words, the risk comes from the loss caused by the other party's failure to perform the contract/pay your profits when you make money, rather than the risk directly caused by the price change of the financial product itself. From this perspective, the credit risk of futures is smaller than that of forward contracts. Forward contracts may or may not have margin, and in many cases there will be no settlement before the contract expires, which makes the credit risk of the actual counterparty very large.
3. In the case of futures, there must be a margin. According to the daily closing price, the margin account is settled every day (marking the market day by day). If the amount is insufficient, an additional margin is required.