Variable Prepaid Forward Contracts

AAA

DEFINITION of 'Variable Prepaid Forward Contracts'

An agreement to give a predetermined number of shares to a brokerage firm, with the stipulation of officially transferring title at some future date. The original owner receives a high percentage of the value of the shares at the time of transfer and receives a portion of the gains at the official transferring. If there was a loss during this time period, the brokerage absorbs it.

INVESTOPEDIA EXPLAINS 'Variable Prepaid Forward Contracts'

Variable prepaid forward contracts are often used by investors to lock in their profits and defer their taxes. In return for giving the stock to the brokerage company, the investor usually gets between 75% and 90% of the current value. So the investor receives cash now, but doesn't actually have to account for the income until the official transfer is complete. Some think this should not be allowed because technically a transfer has occurred, and should therefore be recognized for tax and regulatory reasons.

RELATED TERMS
  1. Shareholder

    Any person, company or other institution that owns at least one ...
  2. Synthetic Forward Contract

    A position in which the investor is long a call option and short ...
  3. Forward Delivery

    A delivery of the underlying asset at the date agreed upon in ...
  4. Forward Rate Agreement - FRA

    An over-the-counter contract between parties that determines ...
  5. Deferred Charge

    A prepaid expense that is treated as an asset on a balance sheet ...
  6. Brokerage Company

    A business whose main responsibility is to be an intermediary ...
Related Articles
  1. Passing The Buck: The Hidden Costs Of ...
    Bonds & Fixed Income

    Passing The Buck: The Hidden Costs Of ...

  2. Deciphering Deferred Annuity Designations
    Options & Futures

    Deciphering Deferred Annuity Designations

  3. Variable Prepaid Forward Contract: Scam ...
    Options & Futures

    Variable Prepaid Forward Contract: Scam ...

  4. Don't Be Misled By Investment Advertising
    Home & Auto

    Don't Be Misled By Investment Advertising

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center