CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Forward Contract

Forward Contract

What is Forward Contract?

A forward contract is an agreement between a buyer and seller to trade an asset, usually a currency, at a mutually agreed upon fixed price and set date. Unlike futures contracts, forward contracts are private arrangements between the buyer and seller, and, as such, they are not traded on the centralized exchange, but rather are considered part of the OTC market. This makes forward contracts a riskier venture than futures contracts. The primary factors in determining the price of a forward contract are the market value of the asset and the time at which point the contract will be fulfilled, which is influenced by the swap rates.

How does one use Forward Contract?

Forward contracts are purchased in a manner similar to that of futures contracts. The buyer and seller agree on the asset to be sold, on the price, and on the date that the exchange will take place. The forward contract is settled only when the contract term expires, unlike futures contracts, which settle on a daily basis. Forward contracts are primarily used as a tool to hedge the volatility in the asset being traded. That forward contracts can be more highly customized than futures contracts provides both more flexibility, but also a higher risk.

Links related to Forward Contract
Expiry Date
Futures Contract
OTC market
Swap rates

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