Forward contract

A forward contract fixes contractual terms today for a future transaction involving an underlying such as a currency, commodity or security. It is generally customised and traded over the counter; settlement may be physical or cash-based as specified. Both parties normally have obligations, unlike an option holder who may choose whether to exercise. Forward prices, settlement dates, credit exposure and early termination costs depend on the contract. A currency forward is one application, while a forward rate agreement has its own interest-rate settlement mechanics.