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    Forward Contract Futures Contract

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    Aditi
    A forward contract is a customized agreement between two parties to buy or sell an asset at a predetermined future date and price, with high counterparty risk and no guarantee of settlement until maturity. A futures contract is a standardized, exchange-traded agreement to buy or sell an underlying asset at a future date, with low counterparty risk, daily mark-to-market pricing and margin requirements, and potential to expire without delivery of the asset. Both are used for hedging purposes but futures are also used for speculation due to their standardized and exchange-traded nature.

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    Forward Contract Futures Contract

    Uploaded by

    Aditi
    74 views2 pages
    A forward contract is a customized agreement between two parties to buy or sell an asset at a predetermined future date and price, with high counterparty risk and no guarantee of settlement until maturity. A futures contract is a standardized, exchange-traded agreement to buy or sell an underlying asset at a future date, with low counterparty risk, daily mark-to-market pricing and margin requirements, and potential to expire without delivery of the asset. Both are used for hedging purposes but futures are also used for speculation due to their standardized and exchange-traded nature.

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    Future vs forward

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    A forward contract is a customized agreement between two parties to buy or sell an asset at a predetermined future date and price, with high counterparty risk and no guarantee of settlement until maturity. A futures contract is a standardized, exchange-traded agreement to buy or sell an underlying asset at a future date, with low counterparty risk, daily mark-to-market pricing and margin requirements, and potential to expire without delivery of the asset. Both are used for hedging purposes but futures are also used for speculation due to their standardized and exchange-traded nature.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    74 views2 pages

    Forward Contract Futures Contract

    Uploaded by

    Aditi
    A forward contract is a customized agreement between two parties to buy or sell an asset at a predetermined future date and price, with high counterparty risk and no guarantee of settlement until maturity. A futures contract is a standardized, exchange-traded agreement to buy or sell an underlying asset at a future date, with low counterparty risk, daily mark-to-market pricing and margin requirements, and potential to expire without delivery of the asset. Both are used for hedging purposes but futures are also used for speculation due to their standardized and exchange-traded nature.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Forward Contract versus Futures Contract comparison chart

    Forward Contract Futures Contract


    Definition A forward contract is an agreement A futures contract is a standardized
    between two parties to buy or sell contract, traded on a futures
    an asset (which can be of any kind) exchange, to buy or sell a certain
    at a pre-agreed future point in time underlying instrument at a certain
    at a specified price. date in the future, at a specified price.

    Structure & Customized to customer needs. Standardized. Initial margin payment


    Purpose Usually no initial payment required. required. Usually used for
    Usually used for hedging. speculation.

    Transactio Negotiated directly by the buyer and Quoted and traded on the Exchange
    n method seller

    Market Not regulated Government regulated market (the


    regulation Commodity Futures Trading
    Commission or CFTC is the
    governing body)

    Institutiona The contracting parties Clearing House


    l guarantee

    Risk High counterparty risk Low counterparty risk

    Guarantees No guarantee of settlement until the Both parties must deposit an initial
    date of maturity only the forward guarantee (margin). The value of the
    price, based on the spot price of the operation is marked to market rates
    underlying asset is paid with daily settlement of profits and
    losses.

    Contract Forward contracts generally mature Future contracts may not necessarily
    Maturity by delivering the commodity. mature by delivery of commodity.

    Expiry date Depending on the transaction Standardized

    Method of Opposite contract with same or Opposite contract on the exchange.


    pre- different counterparty. Counterparty
    termination risk remains while terminating with
    different counterparty.

    Contract Depending on the transaction and Standardized


    size the requirements of the contracting
    parties.

    Market Primary & Secondary Primary

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