Equity Forward Contract In Contra Costa
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Equity Contract means a contract which is valued on the basis of the value of underlying equities or equity indices and includes related derivative contracts.
Forward Contracts can broadly be classified as 'Fixed Date Forward Contracts' and 'Option Forward Contracts'. In Fixed Date Forward Contracts, the buying/selling of foreign exchange takes place at a specified future date i.e. a fixed maturity date.
The forwards vs. futures distinction lies in their trading methods, as forwards are traded over the counter while futures are traded on an exchange. Futures contracts are traded on exchanges and are standardized and regulated.
Today, forward contracts can be for any commodity, in any amount, and delivered at any time. Due to the customization of these products they are traded over-the-counter (OTC) or off-exchange. These types of contracts are not centrally cleared and therefore have a higher rate of default risk.
A forward contract usually has only one specified delivery date, whereas a futures contract has a range of delivery dates. The forward contract is a custom-made or tailor-made contract, whereas a future contract is standardized in quantity, quality, and delivery date.
Suppose that a client has entered into an equity forward contract with a bank. The client (long side) agrees to buy 400 shares of a publicly listed company for US$ 100 per share from the bank (short side) on a specified expiration date one year in the future.
The most common forms of equity include: Home Equity: The value of a homeowner's stake in their property, calculated by subtracting the mortgage owed from the home's market value. Shareholder Equity: The ownership interest in a company, representing the residual value after all liabilities are accounted for.