A forward contract is a private, customized agreement between two parties to buy or sell an asset at a specified price on a future date. Unlike standardized futures contracts, forwards are traded over-the-counter (OTC) and can be tailored to the specific needs of the counterparties, though they carry additional counterparty risk.
Example
“A coffee importer entered into a forward contract to buy 100 tonnes of coffee beans at $2.10 per pound in six months, locking in the price to protect against potential price increases.”