What does a forward contract obligate the buyer to do?

A forward contract is a financial instrument commonly used in commodities and financial markets, which obligates the buyer to take delivery of a specified commodity at a predetermined future date and price. By entering into a forward contract, the buyer agrees to receive the commodity as stipulated, ensuring that they have secured a price which can provide cost certainty and protection against price fluctuations in the market.

The unique nature of forward contracts lies in this obligation to take delivery; it is a binding agreement that defines not just the price but also the timing and the quantity of the commodity to be delivered. The intention is often to hedge against future price movements, allowing the buyer to plan and manage their financial exposure effectively. Thus, the focus of the forward contract is on the buyer's commitment to take possession of the asset, making this the correct interpretation of what it obligates the buyer to do.