A forward is a contract agreement between two parties to exchange a certain amount of an asset for another asset at a fixed price on a fixed future date. Forwards are effective hedging vehicles that allow buyers to indicate the exact amount to be exchanged and the date on which to settle in the forward contract.
By locking into a forward contract to sell an asset, the seller sets a future price with no upfront cost. Forward settlement can either be on a cash or a delivery basis, provided that the option is mutually acceptable and has been specified beforehand in the contract. Forward contracts are one of the main methods used to hedge against price volatility, as they avoid the impact of price fluctuation over the period covered by the contract.