forward contract
Customized future trade
A forward contract is an agreement to buy or sell an asset at a specified price on a future date.
Unlike standardized futures traded on exchanges, forward contracts are private arrangements between two parties, customized to their needs: The company locked in its fuel costs with a forward contract.
The flexibility comes with counterparty risk—if one side defaults, the other has limited recourse.
Shared position between parties
- settlementResolved dispute or colony
- deliveryConveyance of goods
- obligationRequired task or commitment
- counterpartyOther side in deals
buyer · seller · transaction · terms · maturity · expiration · specification · binding
Unproven theorizing or risky investment
- arbitrageExploiting price discrepancies
- long positionOwning an asset outright
- short positionSelling borrowed securities
- derivativesThings derived from another
leverage · premium · discount · liquidity · trader · market maker · carry trade · mark-to-market
Medium of exchange
- commodityFungible traded good
- interest rateCost of borrowing money
- foreign exchangeTrading between national currencies
- crude oilUnrefined fossil fuel
natural gas · wheat · corn · soybeans · gold · bonds · metals · agricultural products
Identifying and minimizing threats
- lock inCommit to irrevocably
- price protectionRefund for subsequent markdowns
- exchange rateCurrency conversion value
- interest rateCost of borrowing money
agreement
Shared position between parties
- settlementResolved dispute or colony
- deliveryConveyance of goods
- obligationRequired task or commitment
counterparty · buyer · seller · transaction · terms · maturity · expiration · specification · binding · predefined
speculation
Unproven theorizing or risky investment
- arbitrageExploiting price discrepancies
- long positionOwning an asset outright
- short positionSelling borrowed securities
derivatives · leverage · premium · discount · liquidity · trader · market maker · carry trade · mark-to-market · profit
currency
Medium of exchange
- commodityFungible traded good
- interest rateCost of borrowing money
- foreign exchangeTrading between national currencies
crude oil · natural gas · wheat · corn · soybeans · gold · bonds · metals · agricultural products · energy
risk management
Identifying and minimizing threats
- lock inCommit to irrevocably
- price protectionRefund for subsequent markdowns
- exchange rateCurrency conversion value
forward contractcall option
Right to buy at set price
put option · options · option · right to buy
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