Commodity Fowards
Master Complex Financial Derivative Contracts
Through Interactive AI Learning
A commodity forward is a financial contract between two parties to buy or sell a specified quantity of a commodity at a predetermined price on a future date. These contracts are typically used for hedging or speculative purposes, allowing producers or consumers of the commodity to lock in prices and reduce exposure to price fluctuations in the market. Unlike futures contracts, commodity forwards are customized agreements that are not traded on exchanges and therefore are over-the-counter (OTC) instruments. This customization allows for greater flexibility in terms of quantity, delivery location, and other terms but comes with increased counterparty risk since there is no clearinghouse to guarantee the transaction.