Introduction to forwards market

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      Lesson summary:

      In ancient Sumer around 8000 BC, clay tokens molded into envelopes were used to exchange goods by a certain date. The date and tokens determined the delivery time frame. In India, around 320 BCE, Kautilya, a philosopher, economist, and royal counsellor, discussed the method for determining the price of crops that would be harvested at a future date, and this technique was used to pay farmers in advance. This was the simplest form of a derivative, where the value of the asset derives from an underlying asset such as a stock, bond, commodity, or currency. Another derivative contract is called futures, which is similar to forwards and is preferred by traders. Futures contracts involve an agreement between two parties in which the actual transaction will take place in the future. The transaction is determined by the buyer and seller and can involve the exchange of anything such as cash for gold, but there are risks involved if the price of the underlying asset changes. The founder and CEO of Learnab.com, Prateek Singh, in his module explains that it is easier to understand futures by first learning about forwards contracts. He provides an example with props and explains the three possibilities at the end of the contract.