Forward, Spot and Basis Relationship|
A contractual obligation between two parties to exchange a particular good or instrument at a set price on a future date. The buyer of the forward agrees to pay the price and take delivery of the good or instrument and is said to be long the forward, while the seller of the forward, or short, agrees to deliver the good or instrument at the agreed price on the agreed date. Banks are often involved as credit intermediaries and collateral may be deposited, but cash is not exchanged until the delivery date. See also Futures Contract.