What is a forward contract?
A forward contract is an agreement between two parties to buy or sell an asset at a specified price on a predefined expiry date. Both parties have an obligation to fulfil their end of the agreement.
A forward contract can vary between different trades, making it a non-standardised entity. This means that it can be customised according to the asset being traded, expiry date and amount being traded.
Forward contracts are most commonly used for trading commodity markets, but they are also a popular tool for trading forex.
Forward contracts vs futures contracts
A forward contract is not to be confused with a futures contract. Both agreements give traders the obligation to buy and sell an asset (or settle the exchange in cash) at a set price in the future, However, there are a few key differences between them, these include: