Question

4. What is the difference between the commodities traded in the forward market and the futures market?

Answer 1

There are various differences between the commodities which are traded in the Forward Market in the future Markets and they are as follows-

A. Commodities in the Forward Market are traded in customised contracts whereas commodities in the future market traded in standardized contracts.

B. Commodities in future market are continuously traded and hence they are having a higher rate of transparency where as commodities in forward markets are not having that transparency.

C. There is a high degree of counterparty risk involved in trading commodities in Forward Market whereas there is a very low degree of counterparty risk while trading commodities in future market.

D. Commodities in future market will be having very high volume and commodities in Forward Market will be having low volume.

E. Commodities in future market will be traded upon stock exchange whereas, Commodities in Forward Market will be traded upon over the counter exchanges.