Forward Contract can be used for hedging or speculation, although its non standardized nature makes it particularly apt for hedging. It is a customized contract between two parties to buy or sell an asset at a specified price on a future date. It is a private agreement between two parties giving the buyer an obligation to purchase an asset and the seller an obligation to sell an asset at a set price at a future point in time. It’s specification can be customized and may include mark-to-market and daily margin calls. A forward contract arrangement might call for the loss party to pledge collateral or additional collateral to better secure the party at gain.
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