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Forward price

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 risk, then the Forward price will equal the Futures price.

Related Terms: 27 Allowance, Credit risk, Car, CLU, Cost of carry, Contract, Credit, Default, Default risk, ECI, Forward, Forward price, Futures, Futures contract, Futures price, Interest, Inc., Low, Market, Owe, Position, Pot, Party, Risk, Spot, Spot price, Yield
Other Related Pages: Category: Futures Starting With: F
Semi Related Terms: 851 CLICK HERE TO VIEW
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