Forward Market

A forward market is a financial marketplace where participants enter into forward contracts — private, bilateral agreements to buy or sell a specific asset at a predetermined price on a specified future date. Unlike futures contracts (which are standardised and traded on regulated exchanges with a central counterparty clearing house), forward contracts are OTC instruments that are customised in terms of quantity, price, settlement date, and delivery conditions, making them more flexible but subject to higher counterparty risk. In India, the forward market is most active in foreign exchange — Indian exporters and importers use USD/INR forward contracts to lock in exchange rates for future transactions, hedging against currency risk. The RBI and SEBI regulate forex forward contracts for eligible entities. Commodity forward markets also exist for agricultural products, where farmers and food processing companies use forwards to manage price risk — though exchange-traded commodity futures are increasingly preferred for their standardisation and reduced counterparty risk.