{"id":2438,"date":"2015-04-29T16:52:02","date_gmt":"2015-04-29T16:52:02","guid":{"rendered":"http:\/\/192.168.0.202\/en\/?p=2438"},"modified":"2016-10-16T20:06:10","modified_gmt":"2016-10-16T20:06:10","slug":"futures-contracts-vs-forward-contracts","status":"publish","type":"post","link":"https:\/\/www.futuresandoptions.gr\/en\/futures-contracts-vs-forward-contracts\/","title":{"rendered":"Futures contracts vs. Forward contracts"},"content":{"rendered":"

Futures contracts vs. Forward contracts<\/h1>\n

A futures contract,<\/b>\u00a0 often referred to as futures,<\/b> is a standardized version of a forward contract that is publicly traded on a futures exchange (CME, LME etc.). Like a forward contract, a futures contract includes an agreed upon price and time in the future to buy or sell an asset, usually stocks<\/a>, bonds, or commodities, like gold<\/a>, crude oil, AAPL.<\/p>\n

A forward contract<\/b> is a customized contractual agreement where two private parties agree to trade a particular asset with each other at an agreed specific price and time in the future. Forward contracts are traded privately over-the-counter, not on an exchange.<\/p>\n

Comparison chart<\/h2>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
<\/th>\n\n

Forward Contract<\/h3>\n<\/th>\n

\n

Futures Contract<\/h3>\n<\/th>\n<\/tr>\n<\/thead>\n

Definition<\/td>\nA forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time at a specified price.<\/td>\nA futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.<\/td>\n<\/tr>\n
Structure & Purpose<\/td>\nCustomized to customer needs. Usually no initial payment required. Usually used for hedging.<\/td>\nStandardized. Initial margin payment required. Usually used for speculation.<\/td>\n<\/tr>\n
Transaction method<\/td>\nNegotiated directly by the buyer and seller<\/td>\nQuoted and traded on the Exchange<\/td>\n<\/tr>\n
Market regulation<\/td>\nNot regulated<\/td>\nGovernment regulated market (the Commodity Futures Trading Commission or CFTC is the governing body)<\/td>\n<\/tr>\n
Institutional guarantee<\/td>\nThe contracting parties<\/td>\nClearing House<\/td>\n<\/tr>\n
Risk<\/td>\nHigh counterparty risk<\/td>\nLow counterparty risk<\/td>\n<\/tr>\n
Guarantees<\/td>\nNo guarantee of settlement until the date of maturity only the forward price, based on the spot price of the underlying asset is paid<\/td>\nBoth parties must deposit an initial guarantee (margin). The value of the operation is marked to market rates with daily settlement of profits and losses.<\/td>\n<\/tr>\n
Contract Maturity<\/td>\nForward contracts generally mature by delivering the commodity.<\/td>\nFuture contracts may not necessarily mature by delivery of commodity.<\/td>\n<\/tr>\n
Expiry date<\/td>\nDepending on the transaction<\/td>\nStandardized<\/td>\n<\/tr>\n
Method of pre-termination<\/td>\nOpposite contract with same or different counterparty. Counterparty risk remains while terminating with different counterparty.<\/td>\nOpposite contract on the exchange.<\/td>\n<\/tr>\n
Contract size<\/td>\nDepending on the transaction and the requirements of the contracting parties.<\/td>\nStandardized<\/td>\n<\/tr>\n
Market<\/td>\nPrimary & Secondary<\/td>\nPrimary<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n","protected":false},"excerpt":{"rendered":"

Futures contracts vs. Forward contracts A futures contract,\u00a0 often referred to as futures, is a standardized version of a forward contract that is publicly traded on a futures exchange (CME, LME etc.). Like a forward […]<\/p>\n","protected":false},"author":6,"featured_media":2620,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[241,14,22],"tags":[485,486,487,37,680,484,488,20,410],"class_list":["post-2438","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-futures-2","category-financial-news","category-wall-street","tag-bonds","tag-exchange","tag-forward-contract","tag-futures","tag-futures-trading","tag-margin","tag-otc","tag-stocks","tag-trader"],"yoast_head":"\nFutures contracts vs. Forward contracts - Futures and Options<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.futuresandoptions.gr\/en\/futures-contracts-vs-forward-contracts\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Futures contracts vs. Forward contracts - Futures and Options\" \/>\n<meta property=\"og:description\" content=\"Futures contracts vs. Forward contracts A futures contract,\u00a0 often referred to as futures, is a standardized version of a forward contract that is publicly traded on a futures exchange (CME, LME etc.). 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