2. Forward contracts are over-the-counter transactions. Just like spot trading, both sides 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 the forward contract is signed, it has no value-payment can only be made on a future date stipulated in the contract. If the spot price is lower than the forward price, the market situation is described as a positive market or premium. If the spot price is higher than the forward price, the market situation is described as a reverse market or price difference.
Extended data
Compared with recent contracts, forward contracts have a longer trading cycle and a longer time span, which contains many uncertainties. In addition, the turnover and positions of forward contracts are not as large as those of recent contracts, and the liquidity is relatively poor. Therefore, the price fluctuation of forward contracts is more intense and frequent than that of recent contracts. Because of this, in financial derivatives, the risk is passed on to the buyer.
By using forward contracts to fix the exchange rate of international payments, finance will be able to better manage the expenditure of enterprises. They will implement a predetermined exchange rate for a certain number of currencies, so that they can better cope with unpredictable market interference and other external changes. In the uncertain period, enterprises can pay attention to managing as many financial matters as possible. The bottom line is to fix the exchange rate in advance to eliminate the risk of fluctuation.
Baidu Encyclopedia-Forward Contract