Financial contract

A financial contract is a legally binding document between at least two parties which defines and governs the parties’ rights and responsibilities under the agreement.

A financial contract is legally enforceable when it meets the law’s requirements and approval. It usually involves exchanging money, goods, services or promises to trade any of these products.

An example of a financial contract

Contracts for difference (CFDs), futures, and options are examples of financial agreements. Two parties are involved in such contracts.

When a trader buys a CFD, they are bound to pay the difference in the price of an asset between when they open and close their trade.

A futures contract is a standard legal agreement to buy or sell an asset at a predetermined price at a specified future time. The transaction is normally a financial instrument or commodity. The predetermined price agreed by both parties to buy or sell the security is the forward price. The specified future time when delivery and payment occur is the delivery date.

An options contract is defined as a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer. Option Contracts are Exchange Traded or Over the Counter.

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