1. Counterparty Risk: Since forward contracts are traded OTC, there's a risk that one party may default on the agreement. This is known as counterparty risk. 2. Lack of Liquidity: Forward contracts are not as liquid as exchange-traded instruments, making them harder to exit before the settlement date. 3. Complexity: The customization and lack of standardization can make forward contracts complex and difficult to manage, especially for businesses without specialized financial expertise.