Filter by Categories
Accounting
Banking

Derivatives




Closing out a Forward Contract


A forward contract is the simplest type of derivatives, as it constitutes a future-delivery sale transacted today. Once the contract has been entered into, the underlying price or rate is fixed for the amount and delivery date. To take delivery under the terms of the forward at maturity, the buyer should provide instructions to the seller at least one or two days prior to maturity.

Closing out a forward contract can be implemented in one of several ways:

  • Proceed with delivery or taking delivery according to the terms and specifications of the contract.
  • Roll the contract forward to a farther future date at current rates.
  • Close out the contract by buying or selling an offsetting contract at prevailing market rates. For example, a long forward contract can be offset with a short forward contract, or vice versa.


Tutorials
This section contains quite a vast collection of easy-to-understand explanatory manuals, practical guides, and best practices how-tos covering the main themes of this ...
Watch on Youtube
Remember to read our privacy policy before submission of your comments or any suggestions. Please keep comments relevant, respectful, and as much concise as possible. By commenting you are required to follow our community guidelines.

Comments


    Leave Your Comment

    Your email address will not be published.*