Forward Contract

A Forward Contract is a customised, privately negotiated agreement between two parties to buy or sell an asset at a predetermined price on a specified future date. Unlike futures contracts, forwards are traded over-the-counter (OTC) and are not standardised or regulated by an exchange. They are widely used by businesses to hedge against currency risk, commodity price fluctuations, and interest rate changes. The key risk in forward contracts is counterparty risk—the possibility that the other party may default on the agreement.