Is it a bet on price fluctuations and against the house?
Is it a bet on price fluctuations and against the house?
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Savann · External communityPost link
External question — Personal Finance Stack Exchange
Author: Savann
Original post: https://money.stackexchange.com/questions/30924
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
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When one trades Forex, CFDs, metals, or stock indexes with online brokerage firms, does it mean we bet on the price fluctuations without actually owning the underlying assets and is it a bet against the house (against those brokerage firms)?
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NL7 · External communityPost link
External answer — Personal Finance Stack Exchange
Author: NL7
Original post: https://money.stackexchange.com/a/30977
License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/
Adaptation: HTML converted to plain text; contact email addresses removed.
The answer depends on the specific instrument to which you are referring.
It is possible to make straight bets that are cash-settled and in which the underlying commodity or instrument will never be bought or sold. It is also possible to have such a contract be settled in the underlying (if the cash value is appropriate, then the cash settlement can be used to purchase the underlying directly, if necessary). Physical delivery was
predominant until the last few decades
. Most traders, as opposed to hedgers or strategics, are going to prefer cash-settled contracts as opposed to physical delivery.
It is possible to make trades with a brokerage firm such that the firm pays if the trader wins the bet. The firm will typically find parties on the other side to even out this bet and leave itself neutral as to the outcome (plus a small premium it charges each side for the cost of making the market). The cost charged to one contracting party should be set by the dealer in relation to prices being charged to parties making the opposite, matching bet (in this way, brokers are following market price, while traders are setting it).
Financially, options and contracts can be settled for cash or for the underlying, and they can be made directly with the opposite bettor or with a neutral dealer.
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Quoted from Forex.com.bd-Team External answer — Personal Finance Stack Exchange Author: NL7 Source score (net votes, not local likes): 1 Original post: https://money.stackexchange.com/a/30977 License: CC BY-SA 3.0 — https://creativecommons.org/licenses/by-sa/3.0/ Adaptation: HTML converted to plain text; contact email addresses removed. The answer depends on the specific instrument to which you are referring. It is possible to make straight bets that are cash-settled and in which the underlying commodity or instrument will never be bought or sold. It is also possible to have such a contract be settled in the underlying (if the cash value is appropriate, then the cash settlement can be used to purchase the underlying directly, if necessary). Physical delivery was predominant until the last few decades . Most traders, as opposed to hedgers or strategics, are going to prefer cash-settled contracts as opposed to physical delivery. It is possible to make trades with a brokerage firm such that the firm pays if the trader wins the bet. The firm will typically find parties on the other side to even out this bet and leave itself neutral as to the outcome (plus a small premium it charges each side for the cost of making the market). The cost charged to one contracting party should be set by the dealer in relation to prices being charged to parties making the opposite, matching bet (in this way, brokers are following market price, while traders are setting it). Financially, options and contracts can be settled for cash or for the underlying, and they can be made directly with the opposite bettor or with a neutral dealer.
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