Forward Pricing

Forward Pricing

Forward pricing plays a crucial role in the world of finance, particularly in the realm of investment funds. It allows investors to lock in future prices for various assets, providing them with a level of certainty and enabling effective planning. It allows investors to lock in future prices for assets. By understanding the formula and calculations involved, investors can make informed decisions and hedge against market volatility. While forward pricing offers certainty, investors should also consider the drawbacks and carefully evaluate their investment goals. By harnessing the power of forward pricing, investors can navigate the financial landscape with greater confidence and optimise their investment strategies. 

What is forward pricing? 

Forward pricing is a vital aspect of investment funds that enables investors to determine the future price of financial assets. It provides a mechanism for individuals to transact at a predetermined price at a later date, offering them protection against market fluctuations. Unlike spot pricing, which reflects the current market value of an asset, forward pricing establishes a contractual agreement to buy or sell the asset at a specific price on a specified future date. 

In the context of investment funds, such as mutual funds or exchange-traded funds, or ETFs, forward pricing plays a significant role. These funds pool money from multiple investors and invest in a diversified portfolio of assets. When investors seek to buy or redeem shares in an investment fund, the forward pricing mechanism comes into effect. The purpose of forward pricing is to ensure that investors transact at a fair price, which accurately reflects the fund’s net asset value, or NAV, per share at the time of the transaction. This value is typically updated at the end of each trading day. 

Understanding forward pricing 

Forward pricing is a crucial aspect of investment funds. By understanding its significance and application, investors can navigate the complexities of the financial landscape with greater confidence. Forward pricing empowers investors to make informed decisions, hedge against market risks, and optimise their investment strategies. 

Understanding forward pricing entails recognising its significance in the context of investment funds and the factors that contribute to its determination. The forward price of an asset is influenced by several key factors, including the current spot price, interest rates, dividends or income generated by the asset, and the time remaining until the forward contract expires. These factors collectively contribute to the overall value of the asset and influence the pricing decision. It is crucial for investors in the markets to grasp the differences between forward pricing and spot pricing. Spot prices reflect the immediate market value of an asset, whereas forward prices are agreed upon in advance, providing investors with a predetermined price for future transactions. By understanding this distinction, investors can effectively evaluate their investment strategies and make informed decisions. 

Formula of forward pricing 

Understanding the formula for forward pricing is essential for investors to make informed decisions and maximise their investment returns. The formula for calculating the forward price of an investment fund is as follows: 

Forward Price = Net Asset Value (NAV) per Share + (Sales Load or Redemption Fee) 

In this formula, the net asset value per share represents the value of the investment fund’s assets divided by the total number of shares outstanding. The sales load or redemption fee, if applicable, is an additional charge levied by the fund for buying or selling shares. 

By understanding and applying the formula correctly, investors can accurately calculate future prices for investment funds, facilitating effective financial planning and decision-making. However, investors should always consider the specific terms and conditions set by each fund and consult with financial professionals for personalised advice.   

Calculations of forward pricing 

Forward pricing plays a significant role in investment funds, enabling investors to transact at predetermined prices in the future. It provides certainty and allows for effective planning. 

Calculating the forward price involves considering the NAV per share of the fund and incorporating any applicable sales load or redemption fee. Here are the steps to help you navigate through the calculations: 

Step 1: Determine the NAV per Share 

NAV per Share = NAV / Number of Shares 

Step 2: Incorporate the Sales Load or Redemption Fee 

Some investment funds may charge a sales load or redemption fee, which represents an additional charge for buying or selling shares. To calculate the forward price, you need to incorporate the sales load or redemption fee into the NAV per share.  

Forward Price = NAV per Share + (Sales Load or Redemption Fee) 

By following these calculations, investors can determine the forward price of an investment fund and plan their transactions accordingly. 

Example of forward pricing 

Imagine you are an investor looking to purchase shares in a popular mutual fund with a forward pricing mechanism. 

The mutual fund’s current NAV per share is US$50, and there are 100,000 shares outstanding. The fund charges a sales load of 2% on purchases. You plan to buy 1,000 shares at a forward price. 

Step 1: Calculate the NAV per Share 

NAV per Share = NAV / Number of Shares 

NAV per Share = US$50 / 100,000 shares 

NAV per Share = US$0.50 

Step 2: Incorporate the Sales Load 

Forward Price = NAV per Share + (Sales Load or Redemption Fee) 

Forward Price = US$0.50 + (US$0.50 * 2%) 

Forward Price = US$0.50 + US$0.01 

The forward price for the mutual fund would be US$0.51 per share. 

Now, calculate the total cost of your purchase. Since you plan to buy 1,000 shares at the forward price of US$0.51 per share: 

Total Cost of Purchase = Forward Price * Number of Shares 

Total Cost of Purchase = $0.51 * 1,000 

Total Cost of Purchase = $510 

Therefore, to acquire 1,000 shares at the predetermined forward price, you would need to invest US$510. 

Frequently Asked Questions

The spot price represents the current market value of an asset, while the forward price determines the price at which an asset will be bought or sold in the future. The spot price is influenced by immediate market conditions, whereas the forward price is agreed upon in advance and provides certainty for future transactions. 



Investors may want to lock in a forward price to mitigate the risks associated with market volatility. By fixing the price in advance, investors can hedge against potential price fluctuations, ensuring a predetermined cost or profit. 

Some drawbacks of locking in a forward price are: 

  • Missed opportunities 
  • Opportunity cost 
  • Timing risk 
  • Limited flexibility 
  • Market uncertainty 



The main factors that influence an asset’s forward price include the current spot price, interest rates, dividends or income generated by the asset, and the time remaining until the forward contract expires. 


Forward pricing and future pricing are similar concepts but differ in the way they are traded. Forward contracts are typically privately negotiated agreements, while futures contracts are standardised contracts traded on exchanges. However, both types of contracts involve agreements to buy or sell assets at a predetermined price in the future. 


    Read the Latest Market Journal

    Weekly Updates 27/5/24 – 31/5/24

    Published on May 27, 2024 47 

    This weekly update is designed to help you stay informed and relate economic and company...

    Unlocking Stock Market Potential with AI

    Published on May 24, 2024 85 

    Introduction of AI In the world we live in today, artificial intelligence (AI) is almost...

    Financial Sectors Thriving: Top Traded Counters in April 2024

    Published on May 21, 2024 94 

    At a glance: The Federal Reserve (Fed) held interest rates steady at 5.25% to 5.5%...

    One Dollar at a Time: The Potential of Fractional Shares

    Published on May 20, 2024 93 

    Table of contents 1. Introduction 2. Dollar-Cost Averaging 3. Popularity of Dollar-Cost Averaging 4. Small...

    Unit Trusts vs Exchange Traded Funds (ETFs) – Which is better for your portfolio?

    Published on May 20, 2024 92 

    Imagine you are dining at a nice restaurant, feeling overwhelmed by the variety of seemingly...

    Weekly Updates 20/5/24 – 24/5/24

    Published on May 20, 2024 22 

    This weekly update is designed to help you stay informed and relate economic and company...

    What is CFD? With 2 Practical Examples

    Published on May 15, 2024 109 

    In this article, you will learn what CFD (Contract for Difference) is, the costs and...

    What is ESG investing, and why is it important?

    Published on May 15, 2024 121 

    Over the last five years, Environmental, Social, and Governance (ESG) investing has evolved from being...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066