Forward Contracts

A forward contract is a customized financial agreement between two parties to buy or sell an asset at a predetermined price on a specific future date. It helps both parties manage risk by locking in prices today, regardless of fluctuations in the market. These contracts are often used in commodities, currencies, or securities, providing certainty and protection against price changes. Since they are tailored and traded over-the-counter, they aren’t standardized like futures and carry some credit risk if one party defaults. They’re useful for businesses and investors seeking to hedge against future price volatility.