 Basically, when we want to transfer the risk, for risk management, we can transfer the risk and there are three ways through which the risk can be transferred. The first one is called the hedging. Then we have got ensuring as an option and the third option is diversifying. So together these tools are used to transfer the risk from one person or one entity to another. So when we are talking about hedging, it means that basically we are trying to manage the risk by following certain strategies through which the investor or the investment company is taking an opposite position to protect itself from taking any sort of risk. So basically this particular technique of transferring of risk you take an opposite position and not only do you avoid loss but you also have to leave the potential gain you are getting. So this is something which differentiates hedging from all the other two techniques that are used to transfer risk. You also forego your potential gain. In order to avoid loss, you also leave your advantage or forego. So we have to bear a cost in one hedging. If we say forward contracts, then when we are hedging, we use derivatives, we use different types of future contracts, we use forward contracts. So forward contract is basically that contract in which you are making an agreement but your execution will be in the future, therefore we are calling it as a forward contract and in the forward contract, the price on which the transaction will take place in the future is pre-agreed, it is pre-arranged, you have to decide on that right now. So what you are going to buy or sell on your price will be in the agreement right now but the contract will be executed in the future therefore we are calling this particular contract as a forward contract. So in the forward contract, the payment or exchange of goods or whatever you have exchanged for the financial instrument will be in the future but the agreement will be present right now. So there are certain main features of forward contracts. The first one is that there has to be at least two parties who are making an agreement to exchange some item, it could be any good it can be any financial instrument, any investment that you have used any tools that you can use, any goods that you can use in which you are making a forward contract on a particular thing. So you have to define the pre-specified price right now which is your arrangement of the contract. The next important thing is that we need to understand the difference between the forward price and the spot price. So if you are going to pay some price now immediately then we call that scheme as spot price whereas when we are talking about the forward contract then we have already paid the pre-agreed defined date in the future so we call that particular date that particular price as forward price. So in the forward contract, you have to specify the forward price as well. Another important thing which we need to understand in the context of forward contracts is that when we are signing a forward contract you don't have to pay, none of the two parties has to pay anything at the current point in time. At this time when you are signing a contract you don't need to pay anything from both parties it's just a contract. Therefore we are calling this particular contract as a forward contract. Another important thing which we need to understand is that the face value of the contract basically the face value of the contract that would be the quantity of that item multiplied by the price which you are going to define the forward price. So this is how you are going to determine the face value of that contract. Another important thing which we need to understand is the concept of long position and short position. So if you want to sell your asset because you feel that if you are going to sell it after a while then the price of what you are getting right now will not be available. So immediately you want to get rid of that particular instrument or financial asset or any asset. So this means that if you are going to sell your asset then you are taking the short position. Whereas long position means that that individual or party is understanding that the price of this particular item is going to increase in the future. The price is still low so I should immediately buy it. That type of an instrument is taking we are saying that type of an investor is taking a long position. So the buyer is taking a long position and the seller is taking a short position. So when we are dealing with derivatives when we are dealing with forward contracts then we have to understand these two concepts that are used to explain the different types of contracts in which we are dealing with futures or forward contracts. When we say forward contracts there is a special type of contracts that are known as the future contracts. So in the future contract or forward contract there is a small technical difference. In the future there is a contract in which the value of the product is being exchanged in the future. But the exchange is going to happen in the future. We call such contracts forward contracts. It can be any exchange of goods that any body can do any individual can do any company can do but when it comes to futures contract it means that there is a specific market which can be exchanged in the stock market such contracts which have a pre-agreed defined price pre-agreed or defined products these are financial instruments you can exchange them through the stock exchange through the seller only then the contracts will be termed as the futures contract. So this is a difference basically because when you use the stock market to buy and sell forward contracts to the future contracts they are called futures contracts. What is the benefit of this that since the stock market is involved there are certain rules that are used to regulate all the different types of transactions that take place in the stock market so there is an element of standardization that all the investors the seller, buyer, long position the short position both parties under certain rules and regulations they will execute the futures contract they will participate in the market. So therefore the futures contract separates being standardized being only sold in the stock exchange therefore this particular phenomenon or this particular characteristic differentiates it from the forward contract. So there are these two different things that are used by the investors to hedge their investments to protect themselves against risk and this is how they do it by transferring risk those people who want to take risks and those who want to avoid risks they the instruments of their investment or commodities through the futures through the futures contracts or through the forward contracts they transfer and manage their risk.