The forward price (or sometimes forward rate) is the agreed upon price of an asset in a forward contract. Using the rational pricing assumption, for a forward contract on an underlying asset that is tradeable, the forward price can be expressed in terms of the spot price and any dividends. For forwards on non-tradeables, pricing the forward may be a complex task. Forward price formula If the underlying asset is tradable and a dividend exists, the forward price is given by: where is the forward price to be paid at time is the exponential function (used for calculating continuous compounding interests) is the risk-free interest rate is the convenience yield is the spot price of the asset (i.e. what it would sell for at time 0) is a dividend that is guaranteed to be paid at time where Proof of the forward price formula The two questions here are what price the short position (the seller of the asset) should offer to maximize his gain, and what price the long position (the buyer of the asset) should accept to maximize his gain? At the very least we know that both do not want to lose any money in the deal. The short position knows as much as the long position knows: the short/long positions are both aware of any schemes that they could partake on to gain a profit given some forward price. So of course they will have to settle on a fair price or else the transaction cannot occur. An economic articulation would be: (fair price + future value of asset's dividends) − spot price of asset = cost of capital forward price = spot price − cost of carry The future value of that asset's dividends (this could also be coupons from bonds, monthly rent from a house, fruit from a crop, etc.) is calculated using the risk-free force of interest. This is because we are in a risk-free situation (the whole point of the forward contract is to get rid of risk or to at least reduce it) so why would the owner of the asset take any chances? He would reinvest at the risk-free rate (i.e. U.S. T-bills which are considered risk-free). The spot price of the asset is simply the market value at the instant in time when the forward contract is entered into. So and his net gain can only come from the