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{{a|isda|}}{{dpn|/ˈfɔːwəd ˈkɒntrækt/ (also “[[forward sale]]”, “[[forward purchase]]” or just “[[forward]]”|n}}A over-the counter transaction under which one fellow agrees ''now'' to sell an [[asset]] to another at a pre-agreed price at some time ''in the future''. It is different from a [[Futures|future]], which is a standardised, [[exchange-traded]] contract for the delivery of a certain asset at a pre-set date in the future. | |||
Forwards have two main applications: | |||
====Hedging==== | |||
As a way of locking in today a price for an asset you will only need in the future. It is a way of buying an asset without hacing to funds full purchase price before the point where you actually need the asset. You settle the payment and delivery at the time the contract matures. | |||
====Financing==== | |||
Often used in [[financing]] arrangements such as [[repurchase agreement]]s, which comprise simultaneously executed spot sale and forward purchase — so I transfer title to this thing, against agreeing to take it back from you at an agreed price at a stated time in the future. In this case the “lender” avoids taking exposure to the market value of the asset, but is able to have and hold it as collateral — together with margin — against the “borrower”’s ultimate repayment obligation. | |||
===“Forwards” versus “futures”=== | |||
Forward contracts are private, bilateral, [[over-the-counter]] contracts that may be customised to the parties’ hearts’ content. They can thus be contrasted with ''[[Futures|futures]]'' contracts, which are [[exchange-traded]], [[Central counterparty clearing house|centrally cleared]], standardised contract referencing the forward price of a commoditised asset, where there is no opportunity for customisation. | |||
===Popular types of forward contract=== | |||
*{{eqderivprov|Forward Transaction}} under the {{eqdefs}} | |||
*{{euaprov|Forward Transaction}} under the {{euadefs}} | |||
{{sa}} | |||
*Why [[Then I woke up and it was all a dream]] is not a great way of resolving settlement disruptions in a [[forward contract]] | |||