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Forward-based derivatives
A family of derivatives essentially made up of futures, forwards and swaps which require one party to deliver, and the other to take delivery of, a fixed amount or quantity of an underlying (for example a financial asset, an index or a commodity) at an agreed price on a specific future date or during a specific period.
(1) Forward-based derivatives differ from option-based derivatives in that each party agrees to deliver or take delivery of the underlying whereas, in the case of option-based derivatives, the writer commits to sell or buy the underlying if the holder decides to exercise the option, as the holder has the right, but not the obligation, to buy or sell the underlying.
(2) In the case of forward-based derivatives, the bilateral agreement entered into on a given date is only carried out at an agreed date in the future. It generally requires one party to deliver, and the other party to take delivery of, the underlying on that future date under agreed conditions. Certain types of agreements can be settled through the exchange of a differential rather than the delivery of the underlying.