How do futures and forwards differ when it comes to trading digital currencies?

1 answers

• Dec 06, 2021 · 3 years ago
  When it comes to trading digital currencies, futures and forwards offer different ways to speculate on price movements. Futures contracts are standardized agreements to buy or sell a specific amount of a digital currency at a predetermined price and date in the future. They are traded on regulated exchanges and are subject to margin requirements. This means that traders need to deposit a certain amount of money to cover potential losses. Forwards, on the other hand, are customized agreements between two parties to buy or sell a digital currency at a specific price and date in the future. They are traded over-the-counter (OTC) and are not subject to the same regulations as futures contracts. In terms of settlement, futures contracts are settled daily, which means that gains or losses are settled on a daily basis. Forwards, on the other hand, are settled at the end of the contract period. Overall, futures contracts offer more liquidity and transparency compared to forwards, but they also come with higher transaction costs and margin requirements. Forwards, on the other hand, offer more flexibility and customization, but they may be less liquid and more difficult to trade.
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