Market Terms Flashcards
(10 cards)
1
Q
What are forward contracts ?
A
A customised agreement between two parties to buy or sell an asset at a specific price on a future date
2
Q
What are 2 features of forwards ?
A
OTC, no initial payments (only margin)
3
Q
What are 2 common uses of forwards contracts ?
A
Hedging, speculation
4
Q
What is hedging in forex ?
A
Taking a safe position to reduce risk of loss
5
Q
What is hedging ?
A
Making an investment to reduce risk of loss from another investment by taking the opposite position to my main trade
6
Q
A
7
Q
What are 2 features with hedging ?
A
Reduced risk, limited profit
8
Q
What is the main goal with hedging ?
A
To minimise losses not to maximise gains
9
Q
How are forwards contracts settled ?
A
At contract expiry
10
Q
Why is hedging used in forwards ?
A
Lock in a future price to reduce uncertainty
