What Is the Primary Difference between a Forward Rate Agreement and a Swap?
A Forward Rate Agreement (FRA) is a derivative contract to fix an interest rate for a future period on a notional principal amount, involving a single payment at maturity. A swap, such as an interest rate swap, is an agreement to exchange future cash flows based on two different interest rates (e.g. fixed for floating) over a period of time, involving multiple periodic payments.
Glossar
Forward Rate
Agreement ⎊ The forward rate, within cryptocurrency derivatives, represents an expectation of future spot prices embedded within an options contract or other derivative instrument.
Derivative Contract
Definition ⎊ A financial instrument whose value is derived from an underlying asset, index, or rate, encompassing cryptocurrencies, options, futures, swaps, and structured products.
Agreement
Context ⎊ Agreement, within cryptocurrency, options trading, and financial derivatives, signifies a legally binding or consensually established understanding defining obligations, rights, and responsibilities between parties involved in a transaction or contract.
Forward Rate Agreement
Mechanism ⎊ A Forward Rate Agreement, within cryptocurrency derivatives, functions as an over-the-counter contract establishing a future interest rate, applied to a notional principal, differing from a simple forward contract by settling the difference between the agreed rate and the prevailing market rate on specified dates.