Forward Contract

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Definition of 'Forward Contract'

A Forward Contract is essentially the same as a futures contract with the exception that a forward contract is non-standardized while a futures contract is standardized. What this means is that a buyer and seller need to agree to the terms of this customized version of a future when they enter into a forward contract.

The contract is to buy or sell an asset at a specified future time at a price agreed today. Contrast this to a spot contract which is an agreement to buy or sell an asset today.

The party agreeing to buy the underlying asset in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. The price agreed upon is called the delivery price, which is equal to the forward price at the time the contract is entered into.

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