Forwardtehingu

Forwardtehingu is the term used in Estonian for a forward contract, a bilateral financial agreement to buy or sell an asset at a predetermined price on a specified future date. Unlike standardized futures, forwardtehingu agreements are typically negotiated privately and over the counter, allowing parties to tailor key terms such as the asset, quantity, delivery date, and price.

The contract serves two main purposes: hedging and speculation. Hedgers use forwardtehingu to lock in prices for incoming or outgoing goods, foreign currencies, or financial instruments, reducing exposure to adverse price movements. Speculators, by taking long or short positions, seek to profit from anticipated price changes without owning the underlying asset at inception.

Key characteristics include customization, private negotiation, and typically no initial payment. Settlement occurs at maturity, either through physical delivery of the asset or cash settlement, depending on the contract terms. The price agreed at the outset is fixed, while the market value of the contract fluctuates with changes in the forward price of the underlying asset. Because forwards are usually not marked to market daily, there is counterparty risk—the risk that the other party may default before settlement.

In contrast to futures, forwardtehingu contracts are not standardized and are not traded on organized exchanges. This makes them less liquid and more bespoke but more flexible for specific risk profiles. They remain a fundamental tool in corporate risk management and in markets for commodities, currencies, and financial instruments.