forward contract - a kind of contract between the two parties for the supply of the object of the contract (the underlying asset) at a certain time in the future at a predetermined price.This document is to buy (sell) a certain amount of material or financial asset.
Each party assumes the performance of attached as a written commitment: one - to make the delivery, the other - to take it.Originally negotiated price of the transaction that suits all parties.It is called the cost of delivery and is constant throughout the term of the contract.
person taking on a commitment to the delivery of assets, opens a short position (ie selling contract).The second side of the transaction, the acquired assets, in turn, opens a long position (ie buying a contract).The deal does not require any costs from contractors, in addition to the commission at the conclusion of it through intermediaries.
forward contract is signed with the aim of committing a real purchase (sale) of various kinds of assets and insurance customer (and supplier) from a possible price change in the unfavorable side for each participant.This contract implies a mandatory implementation.In some cases, however, there are risks, for example, in case of bankruptcy of one of the participants.Therefore, in order to protect themselves, before entering into such transactions is necessary to find out the reputation and ensure the future solvency of the counterparty.
sometimes enter into a forward contract with a view to profit from the difference the market value of assets.This is done in the case of waiting for growth or decline in prices of the basic goods.
This contract is an individual, therefore, as a rule, the secondary market is not used.The exception is the forward exchange market.
As a result of the contract is considered a real delivery of goods.The subject of the forward transaction - product availability.Running such a contract strictly during the period, which is set by the contract.
Forward is an excellent means of insurance profits.Enter into transactions records existing at the time of the signing of the document conditions: price, time of performance, quantity, etc.Such insurance side of the change of the original terms of the deal called hedging.
As a rule, the cost of goods for such transactions does not match with the prices on cash transactions.It represents the average exchange value of the price of certain goods.Forward value is determined by the participants of the transaction, based on the evaluation of all the data factors and perspectives that affect the state of the market.
Features of financial markets led to a forward contract that began to share in the settlement of the transaction (non-deliverable) and supply transactions.The latter implies the implementation of the supply and settlement through the transfer of the difference, resulting in the price of the product, or the amount previously agreed upon contract.
forward contracts assumed the payment of dividends on the shares of non-payment or negotiated.When they pay over the life of the transaction, its price is adjusted by the amount of these dividends, based on the fact that subsequently (after the acquisition of the contract) the investor will cease to receive them.
Thus, the forward - a fixed-term contract, a solid deal that binding.This contract can not be considered standard.Since the secondary market is very narrow, to find a third party whose interests would be fully consistent with the terms of the contract, it is very difficult.Therefore, the transaction is only part of the needs of both sides.Eliminate the position on the contract party may only with the consent of the counterparty.
