A short position in a forward contract whereby an investor agrees to sell the underlying asset on a specified future date for a preset price. The payoff from a short forward contract on one unit of the underlying is the delivery price of the contract minus the spot price of the asset at maturity, or in equation form:

Payoff = K – S_T

The holder of this contract is obligated to sell the underlying asset, worth the spot price S_T, at the delivery price K. If the spot price is lower than the delivery price, the contract’s payoff will be positive (gain), and vice versa.