Forward Sale Agreement Definition
The lack of anticipated cash flow is one of the advantages of a futures contract over its forward equivalent. In particular, when the futures contract refers to a foreign currency, cash flow management is not facilitated by the non-mail (or receipt) of daily invoices. [9] Suppose Bob buys a house in a year. At the same time, let`s assume that Andy currently owns a $100,000 house that he wants to sell in a year. Both parties could enter into a futures contract. Suppose the two agree on the sale price in one year of $104,000 (lower why the selling price should be that amount). Andy and Bob signed a contract in advance. Bob, because he buys the underlying, would have entered into a long-term contract. Conversely, Andy will have the short contract. In the financial field, a futures contract or simply a stock of appointments is a non-standardized contract between two parties to buy or sell an asset at a given future date at a price agreed upon at the time of the contract, making it a kind of derivative. [1] [2] The party that agrees to buy the underlying in the future occupies a long position and the party that agrees to sell the asset in the future takes a short position.
The agreed price is designated as the delivery price corresponding to the futures price at the time of the contract. Compared to futures contracts, it is very difficult to close your position, that is, to terminate the futures contract. For example, while long in a futures contract, short-term conclusion in another futures contract could violate delivery bonds, but increases the risk of credit risk, as there are now three parties involved. The conclusion of a contract almost always involves contacting the counterparty. [10] Finally, some sellers are beginning to structure their purchases in advance as advance purchases of REIT shares, as sales of REIT shares become more frequent for sellers in order to cope with the tax structuring of foreign investors, resulting in additional complexity. Allaz and Vila (1993) point out that there is also a strategic reason (in an imperfect competitive environment) for the existence of futures trade, i.e. that futures trade can also be used in a world without uncertainty.