Distinguish between futures and forward contract

On the settlement date, the contract is settled by physical delivery of asset in consideration for cash. Settlement date, quality, quantity, rate and the asset are fixed in the forward contract.

Distinguish between futures and forward contract

Differences between Forward contract and Futures contract Similarities or Relationship between Forward Contract and Futures Contract There is a close relationship between futures contract and forward contract in the foreign exchange market.

A futures contract is an agreement to buy or sell an asset on a specified day in futures for a specified price. This is more or less similar to forward contract.

Distinguish between futures and forward contract

But there is a difference between futures contract and forward contracts. Futures contracts are traded on organized exchanges, using highly standardized rules.

But, forward contracts, comparatively do not have such a rigid system and are informal agreements that vary according to the needs of the parties.

Differences between Forward contract and Futures contract The following are some of the fundamental differences between forward and futures contracts.

Forward contract is an informal contract between the contracting parties whereas futures contract is standardized and according to specifications of futures exchange market.

Difference between a Forward and Futures Contract

There is no specific maturity date and it is as per the forward contract. In futures contract, maturity date is fixed which can be 3rd Wednesday of March, June, September or December.

But there is a limited to a small number of currencies in futures contract transaction. No limit for the value of forward contract transactions.

In futures contract, the value of transaction is restricted to Rs. Prices quoted with difference between buying and selling rates in forward contract. In futures contract, only single price prevails on the exchange floor. Forward contract are traded in a secondary market and dealt through banks while the other is a direct exchange market.

Margin money is very nominal in forward contract while Margin money is fixed by the amount involved in the futures contract. No cash flow till delivery in forward contract. Daily settlement will be there in futures contract.

Swap transactions are allowed in forward contract. Only direct transactions are allowed in futures contract There is no guarantor for forward contracts. But Futures exchange market has a guarantor. The purpose of forward contract is to prevent loss through hedging.

But the Purpose of futures contracts are mainly to have speculative gain. Forward contracts are subject to Government regulations. Futures contracts are conducted by Futures market regulations.A forward contract is a non-standardized contract that allows parties to customize how they want to sell or buy an asset, at which price and what date.

On the other hand, a future contract is a standardized contract that requires futures exchange to act as an intermediary between the buyer and the seller for purchasing and selling an asset at a certain date in the future and a.

While both forward and futures contracts allow people to buy or sell a specific asset at a specific time at a given price, they differ in several ways.

A forward contract is a non-standardized contract that allows parties to customize how they want to sell or buy an asset, at which price and what date.

Top Stories

On the other hand, a future contract is a standardized contract that requires futures exchange to act as an intermediary between the buyer and the seller for purchasing and selling an asset at a .

What's the main difference between forward and futures contracts? Update Cancel. ad by Profits Run. What is the difference between forward and futures contracts? Follow us: @Investopedia on Twitter.

What is the difference between forward contract and future contract with example? In this article, we will dissect key differences between futures and forward contracts to determine which works best for your trading style. A non-deliverable forwards contract or NDF is where counterparties agree to settle the difference at the prevailing spot price.

A forward contract is a contract whose terms are tailor-made i.e. negotiated between buyer and seller. It is a contract in which two parties trade in the underlying asset at an agreed price at a certain time in future.

It is not exactly same as a futures contract, which is a standardized form of the forward contract.

Difference Between Futures and Options (with Comparison Chart) - Key Differences