Forward Price Definition & Meaning | Financial Term | CSIMarket
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Glossary

Forward Price

Financial Term

Forward price is the price at which an underlying asset can be bought or sold at a predetermined future date. It is a contractual agreement between two parties where they agree on a future price for the delivery of a specific asset.

In the financial industry, forward prices are commonly used in several ways. One of the most common uses is in the commodity market where producers of commodities, such as oil, often use forward prices to lock in prices for future delivery. For example, a drilling company may purchase a forward contract to sell a certain amount of oil they will produce in the next few months at a fixed price. This allows them to hedge against price volatility and ensure a stable revenue stream.

Forward prices are also widely used in the foreign exchange market, where companies that do business across borders may use them to lock in prices for future currency exchanges. For example, a company based in the US that plans to purchase goods from a supplier in Europe may use a forward contract to buy euros at a fixed price in the future, rather than relying on fluctuations in the exchange rate.

In addition, forward prices are used in the bond market. Forward interest rates can be calculated from bond prices, which in turn can be used to set prices for interest rate futures contracts.

Overall, forward prices play an important role in the financial industry as they offer a way to manage risk and uncertainty in markets where prices can be volatile.


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