The Difference Between Spot Contracts and Futures Contracts
It is important for a trader to know and understand the difference between spot contracts and futures contracts and it will be explained below:
Urgent or immediate, which is the price of the current moment, and it is organized through its own market These markets have their users according to their needs, whether traders or speculators, companies or banks, according to the motive, need, or investment style, whether it is an investment long or a speculative short.
Spot transactions in which transactions take place at the same moment without the need to wait for a delivery time, and it is one of the most common types of trading in foreign currencies, where currencies are traded in pairs, one currency is traded against the other, which provides a mechanism for speculation and also for exchange, especially with the availability of leverage, The advantage of these spot transactions is that they represent a direct exchange between two currencies and are not limited in time.
Future, and this type of contract contains a “Delivery Date”, and there are two contracting parties, a party that sells and a party that buys, and a specific delivery date is agreed upon
These contracts were regulated in the markets, where the expiry date of a particular contract becomes, after which another contract begins with a new delivery date. The average contract term is monthly, one or two months, annually, a year or semi-annual. They are usually used by multinational companies to hedge their currency deals. Currency futures are contracts that specify a specified amount of a currency to be exchanged on a specified settlement date.
Since the level of commodity liquidity is much lower than the levels of other investments, commodity trading and the futures market both depend heavily on financial leverage.
Users of the spot or future market have different motives or trading style
Those who have future obligations or who would like to invest in the long term will choose future contracts.
Whoever does not have any high future obligations, or has an urgent obligation, or invests in a speculative way will choose spot contracts.