What is a primary advantage of using forwards?

The primary advantage of using forwards lies in the fact that they are binding agreements specific to the parties involved. This means that the terms of a forward contract are negotiated and tailored to the specific needs of the two parties, allowing for customization in the contract's details, such as quantity, price, and delivery date. This flexibility is particularly beneficial for businesses that want to hedge against specific risks or lock in prices for future transactions according to their particular situation and requirements.

In contrast, standardized terms, secondary market availability, and immediate cash settlements are characteristics associated primarily with futures contracts rather than forwards. Futures are standardized to facilitate trading on exchanges, whereas forwards are tailored. Futures have more liquidity due to their presence in secondary markets, which forwards do not typically share, and the settlement for futures occurs at predetermined times rather than providing immediate cash settlement like in some other financial instruments. Thus, the unique binding nature of forwards makes them exceptionally valuable for specific contractual needs.