What is Futures OTC trading? How does it work? Table of Contents
What is Futures Trading?
The principle of buying and selling commodities, mainly metals and staple foodstuffs, for future delivery has characterized the markets for over a century.
The same principle has been extended and applied too many of the traded financial products nowadays, such as foreign exchange, equities, bonds, commodities, and many more.
Futures Markets are markets in which participants fix the price they will pay or receive for buying or selling a financial product (bonds, shares, commodities, etc), in the future, thus the parties “lock into” a known exchange rate/price.
Futures contracts are standardized according to quality, quantity, delivery time, and location.
A futures contract is specified with the month during which the delivery or settlement is to occur.
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What is Futures OTC Trading?
Similar to Futures trading, Futures OTC trading (Over-The-Counter) is done in the same way but with few differences.
The most important difference of all is that no physical delivery required of the contract content (commodity, bonds, shares, etc).
Futures OTC markets are decentralized markets where financial products are bought and sold off-exchange.
Windsor Brokers Ltd. deals only with Futures OTC products.
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Who participates in Futures OTC Trading?
Participants in the Futures OTC markets are speculative investors, individuals or corporations, that have no intention of making or taking delivery of the commodity but, rather, seeking to profit from a change in the price.
Investors buy a product when they anticipate rising prices i.e. entering long (and sell that product later at the higher price), or sell a product when they anticipate declining prices i.e. entering short (and then buy that product later at the lower price).
If an investor speculates in futures contracts and the price moves in the direction anticipated, then profit is made.
Conversely, if prices move in the opposite direction then losses are made.
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Comment by Diletta
March 26, 2024
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