Forward

Forward contracts are privately negotiated agreements tailored to specific needs of counterparties, unlike standardized futures. They're typically used for hedging specific exposures or commercial transactions requiring customized terms. Forwards carry counterparty credit risk since they're not exchange-traded or centrally cleared. Settlement occurs at maturity with no interim cash flows, unlike futures' daily settlements. Common applications include currency hedging for international trade, commodity price locks for businesses, and interest rate hedging. Forwards provide precise hedging for specific exposures but sacrifice liquidity and standardization. They're particularly useful for non-standard amounts, dates, or asset specifications not available in futures markets.