#ETHBreaksATH The difference between Futures and Spot Contracts in a simplified way:
1. Spot Contracts:
These are transactions in which a specific asset is bought or sold at the current market price (Spot Price) with almost immediate delivery and payment (usually within two business days).
Examples: Buying a gold bar now from a dealer at market price and receiving it immediately, or buying foreign currencies from a currency exchange.
🔹 Properties:
Execution and settlement are immediate or nearly immediate.
The price reflects the current value of the asset.
There is no 'future obligation' (the transaction is completed and ends).
2. Futures Contracts:
These are binding agreements to buy or sell a specific asset at a predetermined future date at an agreed-upon price.
They are typically done on organized exchanges such as the Chicago Mercantile Exchange (CME).
🔹 Properties:
The asset is not delivered or its value paid at the time of the contract, but at the expiration date (unless the contract is closed beforehand).
They require a margin and daily settlement of profits and losses.
They are used for hedging or speculation.
3. The key difference:
Item Spot Contracts Futures Contracts
Settlement Immediate or nearly immediate In the future (specific date)
Price Current market price Pre-agreed price
Usage Direct trading or consumption Hedging, speculation, arbitrage
Obligation Ends immediately after delivery Legal obligation until expiration
Trading place Spot market (OTC or exchanges) Organized futures exchanges