Groundlearn / Glossary / Forward contract
Forward contract
A CFA and FRM term, defined in plain English with the distinction examiners test.
What it means
A private agreement to buy or sell an asset at a set price on a future date. Customisable, and settled once at expiry.
The exam angle
Carries counterparty risk that builds over the life of the contract, because nothing is exchanged until the end.
Where it appears in the syllabus
- DerivativesCFA Level I · exam weight 6–9% · Forwards, futures, swaps, options and arbitrage-free pricing.
- Financial Markets & ProductsFRM Part I · exam weight 30% · Institutions, market structure, futures, swaps, options, rates, FX, MBS.
Related terms
- Basis riskThe risk that a hedge and the exposure it hedges do not move together, leaving a residual.
- Contango and backwardationContango is a futures price above the spot price; backwardation is a futures price below it.
- DerivativeA contract whose value depends on the price of something else — an asset, a rate, an index or an event.
- Futures contractA standardised, exchange-traded forward, marked to market daily through a clearing house.
- Initial and variation marginInitial margin is the good-faith deposit required to open a futures position; variation margin is the daily cash…
- Notional principalThe reference amount used to compute a derivative’s payments, which is usually never exchanged.
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
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