A forward contract is a financial derivative where two parties agree to trade an asset at a predetermined price and date in the future. Unlike futures contracts, forward contracts are privately negotiated and not traded on an exchange, allowing for customization of the terms. For example, a farmer and a processor might enter into a forward contract for the sale and purchase of a crop at an agreed price, protecting both parties from market price fluctuations. The asset in question can vary, including currencies, commodities, or other goods, and the agreed-upon delivery date and price are tailored to meet the specific requirements of the involved parties. Forward contracts are commonly used for hedging risks associated with future price changes or for speculative purposes. However, they carry counterparty risk, as the performance of the contract depends on the other party's ability to fulfill its obligations. Unlike standard exchange-traded contracts, forward contracts allow businesses and individuals to negotiate terms that suit their specific needs, such as in the case of foreign exchange forward contracts to hedge currency exchange risk. Careful considerations of potential gains and losses are important when entering such contracts, as outcomes are directly tied to the actual market prices on the contract completion date.