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. These contracts are 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. The main advantage of forward contracts is that they help manage risk by locking in prices, which can protect against adverse market movements. However, they also carry risks, such as counterparty risk, where one party may default on the agreement.