{"id":1469,"date":"2019-10-01T13:29:00","date_gmt":"2019-10-01T13:29:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=1469"},"modified":"2025-12-09T14:06:37","modified_gmt":"2025-12-09T14:06:37","slug":"value-price-forward-future-contracts","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/derivatives\/value-price-forward-future-contracts\/","title":{"rendered":"Value and Price of Forward and Futures Contracts"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Basics of Derivative Pricing and Valuation (2025 Level I CFA\u00ae Exam \u2013 Derivative \u2013 Module 2)\",\n  \"description\": \"This video lesson covers key concepts in derivative pricing, including arbitrage, replication, and risk neutrality. It explains pricing and valuation of forward and futures contracts, forward rate agreements, and swaps. The lesson also explores option valuation, factors affecting option prices, put\u2013call parity, binomial pricing, and differences between European and American options.\",\n  \"uploadDate\": \"2022-06-29T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/0Geaej45v7w\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/www.youtube.com\/watch?v=0Geaej45v7w\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/0Geaej45v7w\",\n  \"duration\": \"PT1H08M27S\"\n}\n<\/script>\n\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"ImageObject\",\n  \"url\": \"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/Value-versus-price.png\",\n  \"caption\": \"Value Versus Price\",\n  \"width\": 974,\n  \"height\": 641,\n  \"copyrightNotice\": \"\u00a9 2024 AnalystPrep\",\n  \"acquireLicensePage\": \"https:\/\/analystprep.com\/license-info\",\n  \"creditText\": \"AnalystPrep Design Team\",\n  \"creator\": {\n    \"@type\": \"Organization\",\n    \"name\": \"AnalystPrep\"\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which of the following best describes the difference between the price of a futures contract and its value?\",\n    \"text\": \"Which of the following best describes the difference between the price of a futures contract and its value? A. The futures price is fixed at the start, and the value starts at zero and then changes throughout the life-cycle of the contract. B. The price determines the profit to the buyer, and the value determines the profit to the seller. C. The futures contract value is a benchmark against which the price is compared for the purposes of determining whether a trade is advisable.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is A. The futures price is fixed at the start, whereas the value starts at zero and then changes, either positively or negatively, throughout the life of the contract.\"\n    }\n  }\n}\n<\/script>\n\n\n\n<p>[vsw id=&#8221;0Geaej45v7w&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;]<\/p>\n<p>By assessing the difference between the investors&#8217; determination of the value of a stock or option versus the prevailing market price, investors can either buy or sell the asset to attempt to profit from this discrepancy. However, the same terminology and principles do not apply to forward, futures, or swap derivative contracts.<\/p>\n<h2>Value versus Price<\/h2>\n<p>Typically, in equity market analysis, the objective is to determine the value (fundamental value) of a stock. When a stock trades at a price different from the investor&#8217;s determination of fundamental value, the investor will buy or sell the stock. Thus, the value may not necessarily correspond with the price. Options can be analyzed to determine their fundamental value and differences between price and value exploited.<\/p>\n<p>However, forward, futures and swaps use different terminology for price and value. Forwards and futures start with a zero value since they do not require an outlay of cash at the initiation. As the underlying asset moves in price, the value of the contract becomes positive or negative. However, since the price is one of the parameters of the initial agreement signed by both parties, its value is embedded into the contract at inception and remains fixed. This is why the value of both forward and futures contracts fluctuates throughout the life-cycle.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-16914\" src=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/Value-versus-price.png\" alt=\"Value-versus-price\" width=\"974\" height=\"641\" srcset=\"https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/Value-versus-price.png 974w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/Value-versus-price-300x197.png 300w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/Value-versus-price-768x505.png 768w, https:\/\/analystprep.com\/cfa-level-1-exam\/wp-content\/uploads\/2019\/10\/Value-versus-price-400x263.png 400w\" sizes=\"auto, (max-width: 974px) 100vw, 974px\" \/><\/p>\n<blockquote>\n<h2><strong>Question<\/strong><\/h2>\n<p>Which of the following best describes the difference between the price of a futures contract and its value?<\/p>\n<p>A. The futures price is fixed at the start, and the value starts at zero and then changes throughout the life-cycle of the contract.<\/p>\n<p>B. The price determines the profit to the buyer, and the value determines the profit to the seller.<\/p>\n<p>C. The futures contract value is a benchmark against which the price is compared for the purposes of determining whether a trade is advisable.<\/p>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer&nbsp;is A.<\/p>\n<p>The futures price is fixed at the start, whereas the value starts at zero and then changes, either positively or negatively, throughout the life of the contract.<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>[vsw id=&#8221;0Geaej45v7w&#8221; source=&#8221;youtube&#8221; width=&#8221;611&#8243; height=&#8221;344&#8243; autoplay=&#8221;no&#8221;] By assessing the difference between the investors&#8217; determination of the value of a stock or option versus the prevailing market price, investors can either buy or sell the asset to attempt to profit from&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[10],"tags":[],"class_list":["post-1469","post","type-post","status-publish","format-standard","hentry","category-derivatives","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Value &amp; Pricing of Forwards &amp; Futures | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn how forward and futures contracts are valued and priced, including key differences in their valuation methods.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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