A forward contract is agreed one-to-one between the two parties without going through an exchange, and it is used mainly by institutional investors such as financial institutions. Neither the asset nor the cash changes hands when the contract is agreed; the asset is bought and sold at maturity at the agreed price. The price of a forward (the forward price) is set at the spot price plus the cost of funding the asset until maturity, minus income such as interest earned from holding it.
Consider a hypothetical example of a forward to buy one unit of an underlying asset for 102 yen in one year. A price of 122 yen at maturity gives the buyer a 20-yen profit and the seller a 20-yen loss. A price of 82 yen at maturity gives the buyer a 20-yen loss and the seller a 20-yen profit.
A forward whose terms an exchange has standardized so that it can be closed out with an offsetting trade before maturity is a futures contract.