Forward contracts can also be used to accomplish the same objective. For example, assume that the speculator decided to buy 100 ounces of gold, 9 months forward, at a forward contract price of $415 per ounce. If the price of gold quickly rose to $450 per ounce, and the value of the forward contract also rose by $50 to $465, the speculator would have an unrealized “paper” profit of the same $5,000:

However, unlike futures contracts that are liquid and can be closed out at any time before settlement, forward contracts are illiquid and, therefore, might have to be held until settlement day. Therefore, in order to “lock in” the $5,000 profit on the forward contract, it might be necessary for the holder of the long position in the contract to enter into another “offsetting” forward contract by selling 100 ounces of gold forward (settling on the same day as the contract that is held long) at a forward contract price of $465.

Being long and short forward contracts for 100 ounces of gold that settle on the same day effectively means that the speculator has locked in the $5,000 profit, regardless of what the spot price of gold happens to be at the time the two contracts expire. However, this profit will not be realized until the two contracts are settled. At that time, the speculator must pay $41,500 to buy 100 ounces of gold at $415 per ounce, as specified by the initial forward contract in which he or she had a long position; simultaneously, the speculator will deliver the 100 ounces of gold and receive $46,500 as per the second forward contract in which he or she held a short position. Because the $5,000 short-term profit cannot be realized for 9 months (settlement day for the two contracts), the net combined value of these forward contracts is the present value of the $5,000 to be received when they expire. With settlement in 9 months, if