What is contracts trading?
A contract is an agreement between two independent traders relating to an underlying asset, such as a stock, commodity or index. One trader is a Call buyer and the other is a Put buyer. If you are a Call buyer, this means that you believe that the underlying asset will be higher when the contract expires, as each contract has its own expiry time. Conversely, if you are the Put buyer, you believe that the level of the underlying asset will be lower when the contract expires.
Let’s assume that you are the Call buyer and that you buy 1 Call contract ($10 value) whose underlying asset is Apple Inc. at the level of 105, with an expiry time of 4 hours. This means that you believe that when the contract expires in 4 hours from now, the level of Apple will be higher than 105. If the level of Apple is higher than 105 when the contract expires, you will get a 100% return on your investment. Since you bought one contract at $10, your profit is $10, and the total balance in your account will be $20; i.e. $10 invested + $10 profit.
At Daweda, we provide the platform for the traders to meet and to agree on a contract. Daweda also moderates the trade and guarantees the funds exchange between both parties to the contract, but we do not actually participate in the trade. That is, the contract is negotiated and concluded purely between the traders.
Remember – when you buy a contract, you don’t buy the underlying asset, but rather the option that the underlying asset’s price will be higher or lower than the level at which you bought it.
What is the difference between binary option and contract trading?
Binary options are traded through a broker and the ‘options contract’ is between you, the trader, and the broker. In contract trading, the traders mutually decide on the level of the trade and the amount of money they are willing to invest. Another notable difference is when trading contracts on the Daweda exchange, you can enter an order in the Order Book, and wait for the price you chose to be available.
Unlike binary options, when trading contracts on the Daweda exchange, you can even hedge your investment by choosing to enter a position in the opposite direction of your original trade, in order to protect the initial investment.
How does Daweda Exchange make money?
Daweda takes a small fixed fee of only $0.50 (the lowest in the industry) from both the traders on each contract matched. The fee is charged only for actual positions taken, and is not charged for an order in the Order Book that was not concluded with a counter party.