Have you ever heard of a fixed term contract ? It is a strategy used by many investors who perceive the opportunity for profitability of an asset.
This contract is a negotiation that allows investors greater flexibility and planning, and its operation takes place within the forward market.
When considering a simpler derivative, for example, in relation to the futures market, this strategy brings numerous advantages, such as protection for investment portfolios.
Next, better understand what a forward contract is, and whether this is an advantageous operation for your strategies.
Contents [ hide ]
- 1What is the forward market?
- 1How does the forward market work?
- 2What is a forward contract?
- 1Advantages and disadvantages of operating in the forward market
- 3 Is itworth investing in the forward market?
- 4Your goals first at Magnetis
What is the forward market?
Before we talk about contracts, it is important to understand what the forward market is and how it works . The forward market is an environment where negotiations are carried out, both in the organized over-the-counter market – one that already has an organized structure for trading securities – and in the stock exchange.
This means that contracts can be derived from commodities such as corn and soybeans, or from financial assets such as foreign currencies and equities.
In forward operations, both parties involved make a long-term commitment. Thus, today, a certain number of shares – or other derivatives – can be purchased, but full payment will only be made at a future date.
How does the forward market work?
To carry out this future negotiation, the investor must deposit, as a guarantee, a percentage of the total value of the intended investment. In other words, it effects a leverage – an operation that allows transactions and purchases with a higher value than the capital available at the time of the contract.
Thus, the financial movement only occurs at the end of the forward contract .
What is the forward contract?
As its name suggests, the forward contract is the document that formalizes the negotiation within the forward market. It will contain all information regarding the price, assets that will be purchased, term and conditions for settlement of the contract.
Advantages and disadvantages of operating in the forward market
The main advantage of investing in the forward market is to strengthen the protection of the financial portfolio, through hedging strategies , which limit the value of an asset for a future purchase or sale.
In addition, the possibility of purchasing assets without disbursing the full amount before the end of the contract provides investors with opportunities to make allocations at appropriate times.
However, financial leverage is still a risky practice even for the most daring profiles. After all, the strategy is mostly speculative, associated with the high volatility of assets available in the financial market.
Is it worth investing in the forward market?
Despite the advantages, investing in the forward market brings considerable risks to the investor, as it is based on speculation. Even those who have extensive experience with variable income are subject to losses, which can compromise the search for a consistent equity and an investment portfolio capable of providing protection in the midst of crises.
Another point to be highlighted is that a large part of forward trades are brokered by brokers. In practice, this means that conflicts of interest can take the place of investments and strategies that really address the investor’s objectives and profile.
In these conflicts of interest, brokers offer the assets that pay the most interesting commissions, and not the ones that actually offer the greatest return to the investor.
Therefore, when carrying out this type of operation, it is necessary to have adequate support, capable of guaranteeing the best decisions to protect the money invested, while maximizing earnings.
Your goals first at Magnetis
Understanding asset price fluctuations and other characteristics of the financial market, in addition to analyzing in depth the possible risks related to the forward market , requires study and dedication.
The good news is that you no longer need to waste your time figuring out which strategies are best suited to your profile. For this, Magnetis came up with an innovative proposal, full of exclusive conditions and advantages.
Through automated asset analysis, with the full support of investment experts, we offer a unique strategy, completely based on your financial objectives .
Thus, you have access to a diversification strategy that also takes into account your risk profile, with low correlation assets, avoiding spraying .
The result is much more resilience to your investment portfolio against external factors that could affect your earnings – without any kind of speculation or strategy that tries to be based on the future, something unthinkable when it comes to the financial market.
Are you interested in discovering in practice how to have the best assets in your financial portfolio? Come join to invest without conflicts of interest .