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What to know about Forward Contract before Fixing Any Deal?

  • September 2014
  • Posted By Ninoslav

Financial ground is such a field which comes with lots of things. One who has interest in this ground should understand some specific things to know their finance in a proper way. Now, Forward Contract is a term which used in finance to denote the contracts which are non- standardized. Usually, in today’s price rate, two parties are agreed to sell or buy an asset for a mentioned future time in such contract.

How it works
It is not a kind of spot contract. Here, the agreements for an asset should be fixed on today’s rate. This kind of contract can be used for speculation purpose or hedging purpose. It can be long position or short position. The price in which the both parties agreed for the contract is known as delivery price.

This Forward Contract can be customized as per the customer’s need. It does not come with any kind of centralized exchange. It occurs with a settlement which comes with delivery basis or cash. As it is not attached with any centralized clearinghouse, so it is not easily available to you.

A different type in financial market
As says earlier, this type of contract is not traded in a proper organized exchange market. The terms and conditions which are associated with this are not negotiable. Only, a buyer or seller can bid for the price rate.

The Forward Contract is an informal contract which comes with legal validity. It does not require a formal form. The formalities and contract details are written in the contract to conclude it. Now, if you are interested to buy or sell an asset with this contract, then you should understand it clearly before fixing the deal. Otherwise, you can face many legal problems regarding your deal. So, understanding of your contract always plays a major role for your deal.


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