Forward refers to the commitment of both parties to buy or sell a certain amount of subject matter at a specific price in the future (the subject matter can be physical commodities such as soybeans and copper, or financial products such as stock index, bond index and foreign exchange).

Introduction of forward contract:

1. Forward contract is the earliest financial derivative. The two parties to the contract agree to buy and sell related assets at an agreed quantity and price at a certain date in the future.

2. At present, there are two kinds of forward contracts: currency forward and interest rate forward.

3. During the validity period of the forward contract, the contract value changes with the fluctuation of the market price of related assets. If the contract expires in cash, when the market price is higher than the execution price agreed in the contract, the seller shall pay the difference to the buyer; On the contrary, the buyer pays the difference to the seller. The possible gains and losses of both sides are infinite.

As shown on the right:

The main difference between forward and futures: the requirements of contracts are different. Forward contracts are non-standardized contracts, and futures contracts are standardized contracts. Pricing methods are different. Forward contracts are negotiated prices, and futures contracts are open bids. With the change of supply and demand, the transaction price is constantly changing. The settlement method is different. Forward contract is a one-time settlement at maturity, while futures contract is a daily settlement, which is the so-called mark-to-market system. Futures contracts calculate profits and losses according to different settlement prices and adjust the amount of margin accordingly. Different delivery methods. Forward contracts are delivered in kind, while futures contracts are mostly delivered by "hedging and closing positions", and physical delivery is rarely used. Futures is a standard contract with a specific contract clause format, so it is usually traded in the exchange lobby; Forward is a contract agreed by both parties to the transaction, and there is no fixed clause format, so it is usually traded in the OTC market; Futures are traded on the exchange and settled daily, and there is a margin system, so the risk is relatively small; Forward OTC trading, without margin system, is relatively risky.