Difference between forward and future options trading
Futures are contracts to buy or sell a particular asset or cash equivalent on a specified future date. For example, a company may use a futures contract to lock in the price of a foreign currency it needs to buy at some future date.
Futures are also widely used for speculative trading. The futures contract is legally binding, no matter what the market value of the asset is when the contract matures. Both the buyer and the seller of a futures contract face potentially high losses if the market is not performing in their favour. To find out more about futures, try the ASX's futures online course. An option is a contract between two parties.
The buyer has the right, but not the obligation, to buy or sell an asset, at a set price, on or before a specified future date. The seller of an option keeps the money paid for the option whether or not the buyer exercises their rights. If you buy an option but don't exercise your right to buy or sell the asset by the due date, it expires and becomes worthless.
Options can be bought or sold at any time. The market price of an option will reflect the current value of the asset and the time left before the option expires. Selling an option can be very risky especially if you don't already own the underlying asset. If the market price rises above the 'exercise' price you may be forced to buy at the market price and immediately sell at the lower 'exercise' price, incurring an immediate loss.
Try the ASX's options course if you want to find out more. Benchmarks tend to be indices but can be any collection of securities and weights. To be considered a legitimate benchmark, the collection has to be knowable in advance and transparent.
The opposite of Contango. A general downward movement in a market over a sustained period of time. Highest price that any buyer is willing to pay per tonne at any given period.
Bid price could also be referred to as give price or buying price. Normally the more liquid the product, the smaller the spread. A general upward movement in a market over a sustained period of time.
Call Option — Asian: A contract that entitles the holder buyer to receive the positive difference between the exercise price and the spot price.
Compare with Put option. A Clearing House becomes the counterparty for both the seller and the buyer in a trade. This helps to reduce the market risk for trading firms. A derivative derives its value from the price or level of an underlying asset or measurement, such as a bond, loan, equity, currency, commodity, index, published interest rate or a combination of the above. The regulation introduces requirements for OTC derivatives transactions which meet the eligibility criteria to be cleared through central counterparties and all OTC derivatives transactions to be reported to trade repositories.
The exercise Price in an option also called strike price is the price at which the option value in the contract will be set at the time of settlement. The difference between the Exercise price and the spot price defines the value of the Option.
The day on which an Option is subject to expiry for cash settlement. A trade that has been completely executed- i. A buy or sell trade that instructs the broker to either fill the entire order immediately or cancel the trade. A binding offer to buy or sell by a Trade Member. A Firm order is tradable without further confirmations. Financial contract with cash settlement between two named and identified Trade Members with counterparty credit risk.
Cleared financial contract where a clearinghouse acts as central counterpart in all contracts guaranteeing the settlement. Good For the Day: Market or Limit order that remains active only until the end of the trading session. Market or Limit order that remains active until the trade is cancelled or the trade gets filled. A trading strategy which is designed to reduce or mitigate risk.
A second transaction is entered into to offset the risk of the first. A measure of price fluctuation over time. It uses historical daily, weekly, monthly, quarterly and yearly price data to empirically measure the volatility of a market or instrument in the past.
Volatility implied by the market price of the option based on an option pricing model. A position which has intrinsic value, for example a portfolio acquired at a rate which is more advantageous than current market rates.
A single number calculated from the total value of a basket of prices, example Fish Pool Index. A buy order that instructs a broker to only buy at or below a specified price, or a sell order that instructs a broker to only sell at or above a specified price. This type of order insures that you never pay more than you intend, or conversely sell for less than you want. The National Association of Securities Dealers Automated Quotations, more commonly known as Nasdaq, is an all electronic exchange, which accounts for some of the highest trading volume in the world.
Many technology companies choose to list on the Nasdaq. The sum of money or value of securities required to be transferred and maintained, in order to provide protection to the recipient of margin against default by a counterparty to a trade.
Nasdaq demands margin set as cash.