Forward Contract

A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future. The forward price of such a contract is the spot price, which is the price at which the asset changes hands on the spot date.One of the party to a forward contract assumes a long position and agree to buy the underlying assert,on the other hand ,the other party assumes a short position and agree to sell the assert.

This process is used in financial operations to hedge risk, as a means of speculation, or so as to allow a party to take advantage of a quality of the underlying instrument which is time-sensitive.

The forward market is the over-the-counter financial market in contracts for future delivery, so called forward contracts. Forward contracts are personalized between parties. The forward market is a general term used to describe the informal market by which these contracts are entered into. Standardized forward contracts are called futures contracts and traded on a futures exchange.