Info 1: forward definition
Info 2: how forward works
Info 3: forwards vs futures
Info 4: example of forward
Opening information:
Forward means toward the direction of the future or moving something towards somewhere.
But when comes to the Public Market this forward would have defined and demonstrated the different functions.
So now let’s have a look at what is a forward, how the forward works in the stock market among the Corporate Industries, and what is the difference between the forward and futures, finally one clear example of the forward.
Info 1: forward definition
Muhammad, a 26-year-old man, lived in the US state of Pennsylvania in the mid-Atlantic, northeastern part of the USA as an entrepreneur.
He ran a private company. The name of the private company run by Muhammad was Nectwin. Nectwin is a company that produces stainless steel His total net worth is $ 1000 million. Muhammad had a very close friend named Harry.
Muhammad and Harry are best friends. Harry is from New York, a state in the northeastern United States. Like Muhammad, Harry was a businessman.
The name of the private company run by Harry is Phenomico. Phenomico is a private company that manufactures eyeglasses and also Harry’s total net worth of $ 200 million.
When Harry went to Pennsylvania on business, he met his Facebook friend Muhammad in person. Muhammad and Harry became even very very close friends.
Muhammad and Harry made business deals among themselves. That is, they entered into agreements subject to terms and conditions.
according to rules and regulations the deals were made by themselves, The deal will allow Harry to sell his private company, which manufactures Phenomico Eyeglasses to Muhammad for $ 800 million and buy it for $ 800 million from today to in the next 2 years.
Even if Phenomico Industries is worth more than 800 million dollars after the 2 years, then the agreement states Harry must sell the company for 800 million dollars but only after the 2 years not before that.
The time frame for Muhammad and Harry to execute business agreements in the next 2 years, according to the rules and regulations bought and sold their companies within themselves.
Under an agreement, Harry sold his private company, which manufactures Phenomico Eyeglasses to Muhammad for $ 800 million after two years, although Phinamico was valued at $ 500 million, Muhammad paid for the contract for $ 800 million.
commercially, a contract that is traded under the same terms and conditions, such as following the same rules and regulations and trading in the same financial market is called a forward.
So now let’s have a look at how the forward works in the public market among all Investors.
Info 2: how forward works
Forward doesn’t represent anything specific object instead it’s a context of identity which refers to the contract between the two people, to purchase certain assets at a determined market price on a future date.
Therefore any of the contracts which are created by the two parties to trade the one security on rise and fall for the profits and assets purchased in future, then such contract of trade which using of one security is known to be as forward.
Forward is a simple word that is not involved in the public market, but when comes to the public market the forward has occupied the whole function of a trading contract between the two parties.
Using any of the equity share prices two of the persons involved in the one contract to trade on the rise and fall of such security where this contract would expire based on what term of period certain person accepted to close the trade.
The term period would be one month, 3 months, 6 months, 12 months extra… On the chosen time period certain contracts would expire and who owned the trade got the settlement of money from the forward.
Moreover, securities of trading with different things don’t elaborate the forward, instead using any kind of Securities with the involvement of function of the contract is what demonstrates as forward.
Clearly, this forward never allowed trade and profits through the secondary market like stock exchange, Forex exchange, commodities exchanges, derivatives exchange extra…
The forward is the one kind of derivative which are traded in an over-the-counter market, which simply couldn’t be bought and sold in a derivatives exchange like other derivatives of future and options.
Most of people confuse the forward and future, let’s jump into the key difference in it anyway.
Info 3: forward vs futures
The difference between forwards and futures are, forward is the one which is same as a contract of the future, but a forward is contract that is not able to sell daily basics and not tradable
On the other side, the future is the one which is same as forward contracts where trade through derivatives exchanges and able to sell on a daily basis.
So the key difference between the future and forward contract is future is sold their settlement on any day until the expiration date and the forward contract is the one which couldn’t be settled and expired until the final date of the contract.
To make you more clear about the forward, let’s look at one clear example below.
Info 4: example of forward
Say you and your friends had invested in two kinds of Securities, where one security represents derivatives that could be sold at any time before the expiration date of certain derivatives.
The other security derivatives are traded over the counter and are sold only after the expired contract period.
Here derivatives that are not traded over the counter and couldn’t able to sold within any days before the expiration are called as forward, and the derivatives that are sold at any day before the expiration are called future.