forward price
Definition
The price specified in a forward contract for a specific commodity. The forward price makes the forward contract have no value when the contract is written. However, if the value of the underlying commodity changes, the value of the forward contract becomes positive or negative, depending on the position held. Forwards are priced in a manner similar to futures. As with a futures contract, the first step in pricing a forward is to add the spot price to the cost of carry (interest forgone, convenience yield, storage costs and interest/dividend received on the underlying). However, unlike a futures contract, the price may also include a premium for counterparty credit risk, and there is not daily marking-to-market to minimize default risk. If there is no allowance for these credit risks, then the forward price will equal the futures price.
 Cite this definition
Related Terms
forward discount
Related Research Articles from the InvestorGuide.com University
Commodities
Interested in trading commodities? Learn about what they are, the different types there are, and what purpose they serve in an investor's portfolio.
Futures
Futures contracts guarantee a transaction at a date in the future. Learn the details behind futures trading, settling future contracts, and how to price futures.
Introduction to Other Investments
Stocks, bonds and mutual funds are the most popular asset classes and therefore get most of the market's attention, but there are other important investment opportunities every investor should know about as well, including options, futures, and currency. Although these investments are complex and usually intended for sophisticated investors, it's worth understanding what they are and how they operate in order to decide if they should play any role in your overall investment strategy.
Featured Sponsor
|
|
