Forward contract introduction | Finance & Capital Markets | Khan Academy

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Forward Contract Introduction. Created by Sal Khan.
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Finance and capital markets on Khan Academy: In many commodities markets, it is very helpful for buyers or sellers to lock-in future prices. This is what both forwards and futures allow for. This tutorial explains how they work and what the difference is between the two.
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[@onfire4000]

Your drawings are pretty. Just thought you should know that. Also, thank you for the explanation.

[@lorenzoa.fernandezjr.585]

This is just superb, I've been looking for "trade mispricing transfer pricing" for a while now, and I think this has helped. Have you ever come across - Genubrey Mispriced Infiltration - (Have a quick look on google cant remember the place now ) ? Ive heard some interesting things about it and my friend got excellent success with it.

[@Entelex]

A simple yet elegant, precise and understandable treatise on forward contracts which are the basis of futures commodity contracts and why the maligned "speculators" actually provide an extremely valuable service to producers and consumers.

[@tabishkhan6440]

Everything in this video is perfect :) Thank you for the explanation :)

[@joryrox2490]

Claaaaasy class ! Fun to watch I love the why you breaks these stuff in a very unique interesting way .. Bravoooo

[@luckydogvegas]

Nice video, you are providing a wonderful service to people all over the world! Keep up the good work.

[@GadeaOne]

im here because my professor failed to explain this in the classroom. SMH.

[@LECityLECLEC]

Did Sal rlly drop that LOL the devotion. I love this guy!

[@OsloBobby]

You sir...are an artist

[@KaiyuLi-u3k]

Dang, I'm viewing videos from 13 years ago... Cool thing!!

[@TurtleTrader]

Dude, YOU ROCK ... you really do!!!

[@madkaay]

this 3 minutes video managed to explain what a professor at the university of Manchester couldn't do in two two-hours lectures.

[@emilychifundochakumodzi7547]

Well explained 😊 thank you

[@nurulizzati7807]

Very easy to understand!

[@Jegan_Kanthasamy]

Very good explanation sir,...

[@Astrojoy79]

This explanation of a "Forward Contract" was so comprehensive and compact that my 7 year old can NOW explain it to someone else!

[@rmithi]

I really liked the example

[@rainie1329]

so nice, so clear

[@cmsg9792]

very well explained

[@kolojoey]

That pie farmer is a smart one.

[@MayumiMayumi-rp1lx]

this is such a good illustration. Thank you!

[@kevingu2580]

Crystal clear! Many thanks for the sharing!

[@samanthaw603]

Amazing explanation! Thank you

[@monicamunteanu1658]

This is very clear. Thank you so much!

[@nahraf83]

great way to explain a thing ! nice drawing :)

[@MrLamine48]

thanks à lot guys, ive learnt so much with you.

[@tonyhaddad1394]

You are just amazing

[@Broadbased]

So essentially the forward contract is just a delayed purchase/sell agreement.

[@16542791]

You are such a genius! xD

[@onfire4000]

Enki Denys I believe so, one that takes out the volatility of a periodic normal purchase\sell.

[@16542791]

onfire4000 Purchase*

[@onfire4000]

16542791 There you go. English is not my first language.

[@16542791]

onfire4000 It is not mine either bro! ;)

[@FateOfTheElephant]

How is the rate or cost for fixed vs fully optional contracts calculated? I mean why is a fixed contract cheaper than an optional one?

[@Wmerritt515]

This dude can draw...!

[@ParilKatrodiyaPk]

Contract between car insurance company and owner is which type of contract?

[@aleksandar736]

Cool. I kill myself trying to learn this from official university book and here it is, one click and apple away :D

[@yaoyao9361]

a good explanation along with the nice diagram.

[@mudassar1]

@2:30 You said Forward Contract (FC) is an obligation for both parties. On Investopedia, it says "...there may be a chance that one party will default." because it's a private agreement.

[@srees1938]

What if everyone agrees for a future contract? Then it will be the fair market value?

[@MeDavidGusta]

"The future is now, old man".... someone needs to say it...

[@ilgnihc]

i’m being very serious right now, can we have drawing tutorials?

[@woo216]

@OsloBobby and also a mathematician, physicist, engineer, buisness man hedgefund analyst...... the list goes on

[@Rawrlor]

@Entelex Who is the speculator in this forward contract? The producer or the chain?

[@ilikechess1]

damn man, the farmer looks like a boss.

[@dannytetreault]

What is the difference between forward vs future contract? Same thing?

[@SidKolli]

To my understanding, a futures contract is traded on a regulated exchange, while a forwards contract is usually between two private companies. Also, futures are standardized to a contract size, so they can be more easily traded.

[@sanfran224]

@@SidKolli exactly

[@ФилипФилмар]

Sooo what if any side is unable to make good on their side of the contract?

[@evangelia96]

loved the drawings! :D

[@mosinshaikh9302]

contact me on whatsappp [phone]

[@BrumBrumBryn]

Got confused when you stated saying pies per pound instead of apples per pound ha

[@SayianZZ]

I like the drawing :) more visuals yay :P

[@stressedass]

some help here please!! what happens if a purchase of forward contract and a discount was given on the forward rate?? should i add the discount or minus the discount on the spot rate and why??

[@GndmMkv]

@randomwindowsstuffz Yeah, I already knew before you replied. I was at a hobby store and people have been compensating for shipping.

[@anilutkulu]

Who's storing and delivering these apples?

[@WhatCnaThisBe]

sir...did you draw that with your mouse??!

[@hate.clichesyep7116]

question. so if the pie chain and farmer agree to a certain price, shouldn't that be the market price? why is there a price discrepancy between the supply and demand when they agree at a specified date? why the disequilibrium?

[@hamzakim605]

Because the market is much, much more bigger than one farmer and one pie chain. The price is determined by the aggregate supply and aggregate demand of one good :)

[@lesleymatipedza2726]

Prices change especially in farming, there's a huge price risk and price tends to differ in terms of availability. Beans is more expensive in my country during off season and considerably cheaper when it's in season. So when you have a forward contract with off season price the farmer tends to benefit more from such a deal when bean season comes

[@CaptainBlaze]

can you use metric system please?

[@bcnicholas123]

so how does an investor play into this? (someone who trades futures)

[@woo216]

@JaoquinQ he has a MBA from harvard university, the best university in the world, he does not need to research cause he IS the source of information.

[@ektrules]

So... Forward contracts were invented to protect against volatility. But, all traded commodity futures are extremely volatile. Irony?

[@ЛинаГолод]

「コンテンツを調整する必要があります」、

[@qwertyuiop-ke7fs]

Apple farmer looks like he's about to harvest your soul

[@hedonism13]

haha Compare this to his 1+1 video. I've got a feeling his drawing ability has increased.

[@LiguoKong]

isn't this future? a bit confused.

[@wvg.]

@WhatCnaThisBe wacom tablet I guess

[@nobrick321]

Really? Is the farmer obligated to sell his apples even though the contract does not say he must sell it to the chain? I mean, if prices have risen then naturally he can sell it to someone else at the higher market price. Genuine doubt.

[@benjaminaw6703]

thats an option. not a forward contract

[@JorgeReyesF]

In this example, its main purpose is to eliminate the risk of the price being unnatractive for both parties. They are basically protecting themselves against the every day volatility.

[@baharsyah5738]

For some reasons, someone who made forward contract would not put the all quantity into the contract but just half of all quantity so the other half could be sold to other buyers with higher price if the price goes up.

[@kh_o5280]

Is this really correct? If so, what is the difference between "Futures" and "Forward" contracts?

[@mihailopolenak8039]

+Tyler Gage pretty correct. It's simple: Futures are exchange traded - backed by a clearinghouse, while Forwards are "over-the-counter" custom contracts between two parties, not traded on an exchange. Futures are pretty much free of counterparty risk being on an exchange, while fwd contracts are not regulated.

[@corianderthal]

@ilikechess1 he is a mafia leader in disguise.

[@GndmMkv]

20 cents a pound? Gee Raplhs market ripped me off...

[@JustDancinThruLife]

I'm sorry, are you just good at everything?