Forward Contracts

A forward contract is an agreement between two parties to buy or sell an asset at a predetermined future date and price. It is a type of derivative instrument or agreement that derives its value from an underlying asset. The underlying asset can be a commodity, currency, security, or any other asset. The parties involved in a forward contract are known as counterparties. The contract is legally binding and can be customized to meet the needs of the parties involved.

History of Forward Contracts

Forward contracts have been used for centuries to manage risk and facilitate trade. The earliest recorded use of forward contracts dates back to the 17th century, when the Dutch East India Company used them to hedge against the risk of price fluctuations in the commodities they traded. Since then, forward contracts have been used in a variety of industries, including commodities, foreign exchange, and securities.

Today, forward contracts are used by a wide range of investors, from large institutional investors to individual traders. They are used to hedge against price fluctuations, speculate on future prices, and facilitate transactions. Forward contracts are also used by companies to manage their exposure to foreign exchange risk.

Comparison of Forward Contracts

Summary

A forward contract is an agreement between two parties to buy or sell an asset at a predetermined future date and price. It is a type of derivative instrument or agreement that derives its value from an underlying asset. The parties involved in a forward contract are known as counterparties. The contract is legally binding and can be customized to meet the needs of the parties involved.

For more information about forward contracts, visit Investopedia, The Balance, or Investing.com.

See Also

• Futures Contract
• Options Contract
• Swap Contract
• Derivatives
• Hedging
• Speculation
• Counterparty Risk
• Margin
• Leverage
• Arbitrage

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