Forward Market

Whenever a certain seller has certain commodities to exchange in the future for which the price is uncertain, or there happens to be an exporter who wishes to lock in the exchange rate at which the payment must be received, he may do so in the forward market by entering into such contracts. Such contracts, therefore, happen to provide complete hedge and try the maximum to go on to avoid such uncertainties so that parties are assured of the payment rates.

At times, one party may not be willing to enter into such contracts through futures as the terms and conditions of the contract are well stated and standardized, and it is only forward markets that provide such flexibility to customize the forward contracts.The parties at their own will may decide on the quantity, time, and also the rate at the time of delivery as per their needs and specifications.This adds a lot of convenience to both the parties owing to the flexibility options that this market provides.They happen to be tailormade for the parties and can thus be adjusted for any duration and amount.

Owing to the feature of flexibility and customization, the parties can now match their exposure with the timeframe of the period during which they decide to enter into the contract. If the time horizon is 2 months instead of the standard 3 months of the futures contract, the parties can enter into such contracts at their discretion so that their exposure is hedged according to their time horizon. being party-tailored contracts, they can be customized to fit any party and thus change the duration.

The products generally tend to be traded over-the-counter and therefore, thanks to the flexibility they offer, large institutional investors such as hedge funds tend to prefer to trade them rather than enter into a futures contract. over the counter, the products give them the advantage of the flexibility to adapt their contractual strategy, duration and size according to their needs and requirements.