Forward Contract
A bespoke agreement to buy or sell an asset at a future date/price.
Detailed Description
Forward Contract
What is a forward contract?
A forward contract is a customized agreement between two parties to buy or sell an asset at a predetermined price on a specified future date.
How do forward contracts differ from futures contracts?
Forward contracts are customized and traded OTC, while futures contracts are standardized and traded on exchanges.
What are the risks involved with forward contracts?
Risks include market risk, counterparty risk, and liquidity risk.
What is the purpose of using forward contracts in investment?
They are used for hedging against price fluctuations, speculation on price movements, and asset management.
Are there any upfront payments required for forward contracts?
Typically, no upfront payment is required when the contract is signed.