Forward contract refers to a contract in which both parties agree to exchange financial assets at a fixed price in the future and promise to trade in accordance with the currently agreed conditions in the future. It will stipulate the types, prices, delivery and settlement dates of commodities or financial instruments to be bought and sold. Forward contracts are agreements that must be fulfilled, unlike options that can choose not to exercise their rights (that is, give up delivery). Forward contracts are also different from futures, and their contract conditions are tailored for buyers and sellers, and they are reached through over-the-counter trading (OTC), which is a standardized contract bought and sold on exchanges. . The forward contract stipulates the assets to be exchanged in the future, the exchange date, the exchange price and the quantity, and the terms of the contract change according to the needs of both parties. Forward contracts mainly include forward interest rate agreements, forward foreign exchange contracts and forward stock contracts.
A forward contract is a cash transaction in which a buyer and a seller reach an agreement to deliver a certain quality and quantity of goods on a specific date in the future. The price can be determined in advance or at the time of delivery.
Forward contracts are over-the-counter transactions, just like spot transactions, and both parties have risks. Therefore, forward contracts are usually not traded on exchanges. The standard metal contract of the London Metal Exchange is a forward contract, which is traded in the exchange hall.
When a forward contract is signed, it has no value-payment can only be made on a future date stipulated in the contract. Forward markets often use two terms:
1. If the spot price is lower than the forward price, the market condition is described as a positive market or futures premium.
2. If the spot price is higher than the forward price, the market situation is described as a reverse market or a reverse market.
Second, with the arrival of the delivery deadline, various factors affecting the futures contract price will gradually become clear and fixed, market participants will gradually accept the reality, and the party making money or losing money will gradually withdraw from the market and enter a new battlefield. At this time, the futures contract is a short-term contract. Features:
(1) According to the characteristics of the transaction, the recent contract represents the spot price level because it is close to delivery, and the price fluctuation range is often small and the direction is relatively fixed. Even if there is a big fluctuation, it will eventually develop in the original direction. Another main reason why the recent contract price trend is "fixed" is that after fierce competition, both sides have won and lost, and it is difficult to repeat it.
(2) From the operational strategy, the recent contract is suitable for the medium and long term because the direction is not easy to change; Forward contracts fluctuate greatly and are suitable for short-term.
Bank of Shanghai 16 12 represents the silver futures contract due for delivery in February, and 16 12 represents the due delivery time.