A forward contract is a financial agreement between two parties to buy or sell an asset at a predetermined price on a specific future date. This type of contract is commonly used in commodities, currencies, and financial instruments to hedge against price fluctuations. Unlike standardized contracts traded on exchanges, forward contracts are customized and traded over-the-counter, allowing flexibility in terms and conditions. These contracts help businesses and investors manage risk by locking in prices, which can be particularly useful in volatile markets. For example, a farmer might use a forward contract to secure a price for their crop before harvest, ensuring they receive a fair return regardless of market changes.