What is the role of risk in forward contracts?

In a forward contract, both parties assume a risk.  They
are essentially betting against one another and so each has a risk of
losing.

In a forward contract, one party, we'll call it
Party A, agrees to deliver some amount of a good on some date in the future.  The other
party (Party B) agrees to pay right now a certain price for those goods.  That is where
the risk comes in.

On the date that Party A agreed to
deliver the goods, the price of those goods might be higher or lower than the price that
Party B paid.  If it is higher, Party A loses money and Party B profits.  If the price
is lower, Party A gains and Party B loses.

So there is risk
in a forward contract for both parties.

I should also say
that forward contracts are often used to try to limit risk.  Parties want to have
certainty about the price that they will get or pay.  For example, a farmer may want to
enter into a forward contract so he does not have to worry about the price of the crop
dropping.  He might not make as much as he could (if the price goes up) but at least he
has a certain price locked in and has limited his risk of losing money if the crop's
price drops.

So even though there is risk in a forward
contract, they are often used as a way to limit other risk.