Buying forward involves buying commodities, stocks, or currencies at a predetermined price for future delivery. It assists investors in capitalizing on anticipated future price increases. When the price of a stock or currency is bound to appreciate, buying forward enables investors to buy it at a cheaper rate now and sell it in the future when prices appreciate, earning a profit.
How Buying Forward Works
When an investor believes that the price of a stock or a currency will be rising in the future, they buy it at today’s price but ask for the delivery later. This protects them from paying a higher price for the stock and purchasing it before the price rises. It is commonly used in stock markets and in international trades.
Benefits of Buying Forward
There are some advantages in purchasing forward.
- Profit Potential: Investors can make profits by purchasing at a lower price and selling when prices increase.
- Price Stability: It prevents the buyer from incurring abrupt price increases by agreeing to a fixed price.
- Investment Security: Minimizes the risk of sudden market volatility.
Example
For instance, if a share is priced at Rs. 200 and is expected to increase to Rs. 250, and the investor purchases it at Rs. 200, then later the price rises to Rs. 260, they can sell it for Rs. 260, earning a profit of Rs. 60.
Conclusion
Buying forward is a smart investment strategy. It is best for those stocks whose prices are expected to rise. This allows the investors to secure lower prices today and sell them at the increased prices later. Investors looking for ways to grow their investments wisely should use the buying forward approach.