What is forward contracts?
A Relative simple derivative is a forward contract. it is an agreement to buy or sell an asset at a certain future time for a certain price. The forward contract is opposite to spot contract, the spot contract is an agreement to buy or sell an asset today.
A forward contract is traded in the over the counter markets usually between two Financial Institutions or between a financial institution and one of its clients.
So how does a forward contract work?
One of the parties on a forward contract assume a long position and agrees to buy the underlying asset on a certain specified future date for a specified price. the other party assumes a short position and agrees to sell the Asset on the same date for the same price.
Foreign exchanges are mostly done on forward contracts which is quite popular with Financial Institutions.
A forward contract is traded in the over the counter markets usually between two Financial Institutions or between a financial institution and one of its clients.
So how does a forward contract work?
One of the parties on a forward contract assume a long position and agrees to buy the underlying asset on a certain specified future date for a specified price. the other party assumes a short position and agrees to sell the Asset on the same date for the same price.
Foreign exchanges are mostly done on forward contracts which is quite popular with Financial Institutions.
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