Difference between revisions of "Forward contracts"

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A forward contract is a private, cash-market agreement between a [[buyer]] and [[seller]] for the future [[delivery]] of a commodity at an agreed upon price. Unlike [[futures]] [[contract]]s, forward contracts are not standardized and not transferable.<ref>{{cite web|url=http://www.cme.com/glossary/F.html|name=Glossary of Terms - Forward contract|org=CME|date=July 10, 2008}}</ref>  A [[clearing house]] does not stand between[[ buyer]] and [[seller]] to guarantee performance of the forward contract.
A forward contract is a private, cash-market agreement between a [[buyer]] and [[seller]] for the future [[delivery]] of a commodity at an agreed upon price. Unlike [[futures]] [[contract]]s, forward contracts are not standardized and not transferable.<ref>{{cite web|url=http://www.cme.com/glossary/F.html|name=Glossary of Terms - Forward contract|org=CME|date=July 10, 2008}}</ref>  A [[clearing house]] does not stand between[[ buyer]] and [[seller]] to guarantee performance of a forward contract.




== History ==
== History ==
Standardized forward contracts were essentially the first [[futures]] [[contract]]s.  
Standardized forward contracts were essentially the first [[futures]] [[contract]]s.  
According to [[CME Group]]'s educational resources, in 1848 the Board of Trade of the City of Chicago was formed as a [[member]]-owned organization that offered a centralized location for cash trading of a variety of goods as well as trading of forward contracts. As business grew, it was decided that standardizing the contracts would streamline the trading and delivery processes.
Market participants were asked to trade contracts that were identical in terms of quantity, quality, delivery month and terms as established by the exchange. The only thing left for traders to negotiate was price and the number of contracts.





Revision as of 14:01, 10 July 2008


A forward contract is a private, cash-market agreement between a buyer and seller for the future delivery of a commodity at an agreed upon price. Unlike futures contracts, forward contracts are not standardized and not transferable.[1] A clearing house does not stand betweenbuyer and seller to guarantee performance of a forward contract.


History[edit]

Standardized forward contracts were essentially the first futures contracts.

According to CME Group's educational resources, in 1848 the Board of Trade of the City of Chicago was formed as a member-owned organization that offered a centralized location for cash trading of a variety of goods as well as trading of forward contracts. As business grew, it was decided that standardizing the contracts would streamline the trading and delivery processes.

Market participants were asked to trade contracts that were identical in terms of quantity, quality, delivery month and terms as established by the exchange. The only thing left for traders to negotiate was price and the number of contracts.

















References[edit]