Definition of forward contract

An agreement to sell a currency, commodity or other asset at a specified future date and at a predetermined price. This may be the current price or exchange rate, or an agreed forward price/rate, which would be at a discount or premium to the spot rate. The concept is similar to a futures contract, except that futures are more formal and trade on official exchanges. Forward markets are less regulated and most prevalent in currency trade (forward exchange transactions) as dealers attempt to hedge against future exchange rate movements.

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