Forward contract is a hedging tool that appeared in the early 1980s. It is a contract in which both parties agree to buy and sell a certain amount of certain financial assets at a certain price at a certain time in the future. The contract shall stipulate the subject matter of the transaction, the validity period and the execution price at the time of delivery.
Forward contract refers to a contract in which both parties agree to exchange financial assets at a fixed price in the future and promise to trade in accordance with the currently agreed conditions in the future. It will stipulate the types, prices, delivery and settlement dates of commodities or financial instruments to be bought and sold. Forward contracts are agreements that must be fulfilled, unlike options that can choose not to exercise their rights (that is, give up delivery). Forward contracts are also different from futures, and their contract conditions are tailored for buyers and sellers, and they are reached through over-the-counter trading (OTC), which is a standardized contract bought and sold on exchanges. The forward contract stipulates the assets to be exchanged in the future, the exchange date, the exchange price and the quantity, and the terms of the contract change according to the needs of both parties. Forward contracts mainly include forward interest rate agreements, forward foreign exchange contracts and forward stock contracts.