# How the forward and future prices are determined?

### Table of Contents

- How the forward and future prices are determined?
- How do you calculate the future price of a commodity?
- What is a future VS option?
- Do futures have counterparty risk?
- Is it safe to buy OTC stocks?
- How are futures prices determined in the market?
- How does the futures market benefit the seller?
- How to calculate the future value of a futures contract?
- How does economic factors affect the price of a commodity?

### How the forward and future prices are determined?

and the futures price for a contract deliverable in T years is F0 , then: **F0 = S0 (1+r)T where r is the T-year risk-free rate of interest**. This equation relates the forward price and the spot price for any investment asset that provides no income and has no storage costs.

### How do you calculate the future price of a commodity?

Commodity futures prices can be calculated as follows: **Add storage costs to the spot price of the commodity**. Multiply the resulting value by Euler's number (2.

### What is a future VS option?

A futures contract involves an agreement between 2 parties to buy or sell an asset at a certain time in the future at a certain price. An options contract **gives the buyer the right to buy the asset at a fixed price**.

### Do futures have counterparty risk?

Counterparty risk In a futures contract, **the exchange clearing house itself acts as the counterparty to both parties in the contract**. ... All this measures ensures virtually zero counterparty risk in a futures trade. Forward contracts, on the other hand, do not have such mechanisms in place.

### Is it safe to buy OTC stocks?

For regular investors, the only safe way to buy (or sell) OTC stocks is **through a reputable broker-dealer using** one of the two major online platforms, OTC Markets or OTCBB. They actually operate like "discount" stock exchanges, imposing some rules and oversight and, in OTC Markets' case, classifying stocks into tiers.

### How are futures prices determined in the market?

Futures prices evolve from the interaction of bids and offers emanating from all over the country - which converge in the trading floor or the trading engine of an Exchange. The bid and offer prices are based on the expectations of prices on the maturity date.

### How does the futures market benefit the seller?

This system of pricing can benefit the seller or the buyer depending on how the market plays out. If the futures price is less than the actual trading price, the seller benefits (Since he has already sold the contract for a higher price). If the agreed price is more than the actual trading price, the buyer benefits.

### How to calculate the future value of a futures contract?

This is equivalent to the formula for calculating this future value of an investment, where the spot price is the initial value, the term (1+ r f – d) is the interest rate, and t represents the number of compounding periods.

### How does economic factors affect the price of a commodity?

There are many economic factors that will have an effect on the price of a commodity. Although commodities are traded using futures contracts and futures prices, events that occur now will affect the futures prices.