Platform
Accounts Payable
Automate your accounts payable workflow - from ERP to your supplier’s bank account.
Global Receivables
Open unique receivable accounts worldwide to collect payments like a local, save on fees, and control currency conversions on your terms.
Currency Conversions
Enjoy consistent rates with 24/7 control.
Treasury Management
Unified financial operations management across borders and entities.
Corporate Cards
Cards tied to your global accounts - spend globally, earn cashback, and eliminate currency conversion fees.
Integrations
Pull and push transaction data with a single click.
Solutions
Tech
See how Finofo solves the pain points of Tech & SaaS companies.
Food & Agriculture
Leverage Finofo’s platform to grow your Agribusiness globally.
E-commerce
Swipe right on better Global Banking
Automobile Industry
Drive growth with smoother, faster international transactions.
Manufacturing
Finofo makes your financial workflows as advanced as your production line.
Retail & Wholesale
Finofo helps you expand beyond borders with ease.
Pricing
Pricing
All the features without any paywalls
Company
About Us
Empowering business finance teams with technology to surpass traditional barriers.
Submit Pitch Deck
Finofo’s “Pay it Forward” program
Resources
Blog
Learn more about Finofo, Technology, Payments, and Banking.
Case Studies
See Finofo in action with our customers’ stories.
Changelog
Product news and updates.
Powerful tools to save you time and money.
Help Center
Product guides, best practices, and FAQs.
Comparison
Using a Bank?
Here’s what your Finance team endures — experience their pain.
Working with an FX Broker?
Are they really looking out for your best interests? Understand the trade-offs.
Using other Fintechs?
Are they truly solving your needs? Compare and see the difference.
Log InBook DemoSign Up
Glossary

Forward contract

A forward contract is a customized financial agreement between two parties to buy or sell an asset at a predetermined future date and price, providing a hedge against price fluctuations.

Understanding forward contracts: a comprehensive guide

Forward contracts are a fundamental tool in the realm of finance, offering businesses and individuals a means to manage future risks associated with fluctuating prices. These contracts enable the purchase or sale of an asset at a pre-determined price on a specified future date.

What are forward contracts?

Forward contracts are agreements between two parties to buy or sell an asset at a future date for an agreed-upon price. They are customizable, private agreements typically traded over-the-counter (otc), tailored to the specific needs of the involved parties.

How do forward contracts work?

In a forward contract, the buyer and seller agree on details such as the asset, price, quantity, and settlement date. These contracts do not involve an exchange but instead bind the parties to fulfill the agreement at the specified future date. They are useful in hedging against potential price fluctuations, particularly in commodities and currencies.

Key features of forward contracts

  • Customizable agreements between two parties.
  • Involve the purchase or sale of an asset at a predetermined price on a future date.
  • Help in managing and mitigating risks associated with price fluctuations.

Benefits of forward contracts

  • Risk management: businesses use forward contracts to hedge against potential losses due to price changes.
  • Customization: parties can tailor contracts to specific needs, which is beneficial for unique situations.
  • Price certainty: locking in a price for future transactions helps in financial planning and budgeting.

Risks associated with forward contracts

  • Counterparty risk: The risk that one party may fail to meet the terms of the contract.
  • Market risk: The potential for unexpected price movements that could impact the contract's value.

Conclusion

Forward contracts offer a means to manage and mitigate risks associated with price fluctuations in various assets. They provide a way for businesses and individuals to plan and secure future transactions at predetermined prices. Understanding the ins and outs of forward contracts is essential for those seeking to navigate the complexities of financial markets.

In summary, forward contracts provide a valuable tool for managing risks in an ever-changing market, offering stability and predictability in uncertain times.