forward contract investment & finance definition

A non-standardized transaction to buy or sell a specific financial instrument or asset at some period in the future at a specified price. Forward contracts may be written on Treasury debt, currencies, commodities, or any number of other investments. Unlike a futures contract, which has standardized terms and can easily be traded in a secondary market, a forward contract has unique terms. Forward contracts also are subject to the credit risk factors of the counterparty, or the person with whom the transaction is done, which is eliminated in the futures market because the clearinghouse guarantees payment.