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A forward contract is a customized agreement between two parties to buy or sell an asset at a predetermined price on a specified future date. Unlike standardized futures contracts, forward contracts are typically traded over-the-counter and can be tailored to meet the specific needs of the parties involved. They are commonly used in hedging strategies to mitigate risks associated with price fluctuations in commodities, currencies, or financial instruments. However, they carry counterparty risk, as there is no centralized exchange to guarantee the transaction.

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