Definition

Noun: - A financial market for trading forward contracts: A forward market is a decentralized over-the-counter (OTC) marketplace where participants can enter into private agreements (forward contracts) to buy or sell an asset at a specified future date for a price agreed upon today. It is primarily used for hedging against price fluctuations or for speculation.

Usage

The term "forward market" is used to discuss the trading of non-standardized, customizable contracts directly between two parties, as opposed to standardized futures contracts traded on an exchange. - Companies use the forward market to lock in currency exchange rates for future international transactions. - The oil producer entered the forward market to secure a selling price for its next quarter's output.

Advanced Usage

• "to hedge in the forward market": to use forward contracts to reduce the risk of adverse price movements in an asset.
  • The airline hedged its fuel costs in the forward market.
• "forward market liquidity": refers to how easily forward contracts for a particular asset can be bought or sold without affecting the price significantly.
  • Forward market liquidity for major currencies is very high.

Variants and Related Words

• Forward contract (n): The specific agreement traded in a forward market. It is a binding obligation to buy or sell an asset at a set future date and price.
  • They signed a forward contract for 10,000 barrels of oil.
• Futures market (n): A related but distinct centralized exchange for trading standardized futures contracts. (Note: This is different from a forward market).
  • Futures markets, like the Chicago Mercantile Exchange, have daily settlement procedures.

Synonyms

• OTC derivatives market (specifically for forwards): Over-the-counter market for derivative contracts like forwards.
• Forward exchange market (when specifically referring to currencies).

Related Terms and Concepts

• Counterparty risk: The risk that one party in a forward contract will default on their obligation. This is a key consideration in the forward market, as contracts are private.
  • Banks assess counterparty risk carefully when dealing in the forward market.
• Settlement date: The future date specified in the forward contract when the asset is delivered and payment is made.
  • The forward contract has a settlement date of December 15th.

Noun

1. a commodity exchange where futures contracts are traded