The advantages of forward contracts are as follows:
- The contract can be tailored to the user’s exact requirements-with quantity to be delivered, date, and price all flexible.
- The trader will know in advance how much money will be received or paid.
- Payment is not required until the contract is settled.
- Forward contracts can be matched for both the time period and cash size of price exposure.
- If the price of raw materials does increase, the forward contracts offer full hedging.