Forward contract

In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or to sell an asset at a specified future time at a price agreed upon today, making it a type of derivative instrument. This is in contrast to a spot contract, which is an agreement to buy or sell an asset on its Spot Date, which may vary depending on the instrument, for example most of the FX contracts have Spot Date two business days from today.

Note: the current usage of the term forward is inconsistent. Compared to the trade date, the spot date is already two days ahead in the future. There is no reasonable argument why two days ahead is not forward but three days is forward. A overnight date is before spot date, so consequently it should be called backward. Furthermore, some currency pairs (e.g. CAD and USD) trade spot as only one day after today, etc.

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.