Buying Forward
Categories: Derivatives, Trading, Stocks
Buying forward takes place when an investor believes there will be a future price increase, or an increase in demand for a security or commodity.
Like...a barrel of oil is 40 bucks today, but the buyer thinks that it's not really All Quiet on the Middle Eastern Front (union bombs need to work)...and when those bombs go off, oil will skyrocket (and then the price of oil will go up).
So the savvy investor buys now at the current low price, and then purchases a forward contract that spells out the exact date and the agreed-upon future selling price, hopefully making a profit.
Buying forward also comes in handy for those who are into hedging and speculating in foreign exchange markets. Buying Forward is also something they do at draft time in the NBA but, uh, that's a different thing.