A forward contract is a personalized contract between two parties buying or selling an asset on a future date at a defined price. For hedging or speculation, a forward contract might be used, although its unstandardized nature makes it particularly suitable for hedging.
Positions in forward contracts
Forward contracts may be used to lock in a future price to avoid market fluctuations and volatility. The party that purchases a forward contract is in a long position and the party that sells a forward contract is in a short position. The long position gains if the price of the underlying asset rises. The short position gains if the underlying asset price declines.