A forward contract is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract. It is a type of derivative, which means its value is derived from the underlying asset or set of assets. Here are some key points to understand about forward contracts:

• Customizable: Forward contracts can be tailored to a specific commodity, amount, and delivery date.

• Non-standardized: Unlike futures contracts, forward contracts are not exchange-traded and are considered over-the-counter (OTC) instruments.

• Flexible terms: Forward contracts have more flexible terms and conditions, including the number of units of the underlying asset and what exactly will be delivered, among other factors.

• Settlement: A forward contract settlement can occur on a cash or delivery basis.

• Hedging: Forward contracts can be used for hedging against potential losses. They enable the participants to lock in a price in the future, which can be very important, especially in industries that commonly experience significant volatility in prices.

• Risk: Forward contracts have a significant counterparty risk, which is also the reason why they are not readily available to retail investors. However, being traded over the counter (OTC), forward contracts specification can be customized and may include mark-to-market and daily margin calls.

• Advantages: Having no upfront cashflows is one of the advantages of a forward contract compared to its futures counterpart. Especially when the forward contract is denominated in a foreign currency, not having to post (or receive) daily settlements simplifies cashflow management.

Overall, forward contracts are a way for two parties to agree on a future price for an asset, which can be useful for managing volatility and risk in certain industries.