Avoiding market volatility and covering price risk.
A forward is a non-standard bilateral contract traded on non-regulated OTC markets.
The buyer undertakes to buy an agreed amount of certificates for the agreed period, paying the agreed price.
Similarly to future contracts, it is settled on the expiration date which is agreed by the parties. Being a bilateral contract, it triggers the risk that one of the two parties will not honor its contractual commitments.
The future price of the certificate is set today.
No immediate disbursement
Financial settlement (positive or negative) is made on the date of contract expiry.
Price risk coverage
Reduced exposure to market price.