What is a forwards contract?

A forwards contract is a type of financial derivative contract that obligates the buyer to purchase an asset, and the seller to sell an asset, at a specified price and at a specific time in the future.

The buyer and seller agree on the price and the delivery date of the asset when they enter into the contract. The price is typically based on the current market price of the asset, plus an agreedupon premium.

Unlike futures contracts, forwards contracts are not traded on an exchange and are not standardized. This means that they can be customized to meet the specific needs of the parties involved. The lack of standardization can make forwards contracts more difficult to trade and may result in higher transaction costs.