Forward contract
Principles of Finance glossary · Risk, Return & Portfolio Theory
Definition
A private agreement to exchange an asset at a specified future date and price.
Forward contract in plain English
A forward contract is a handshake deal today that locks in the price of something you'll actually swap later — say, agreeing now to buy 100 bushels of wheat in six months for a fixed price. The point is to kill uncertainty: a farmer and a bakery both sleep easier knowing the price won't swing wildly before harvest. It's 'private' because the two sides customize the terms between themselves rather than going through a public marketplace. Whatever the market price turns out to be on that future date, you're still bound to the price you agreed on.
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