Advantages of futures over forwards
- No credit Risk involved in future contracts but forward
contracts are subject to default risk.
- Able to cancel the contract any day before maturity in futures.
forward contracts may be difficult to cancel.
- These contracts are traded in the exchange.hence easily
tradable. forward contracts are traded over the counter.
- Large number of traders in futures compared to forward
contract.
- Future contracts are easily transferable to others. Difficult
to transfer in case of forward contracts.
- Theses contracts are settled on cash basis.
- Secondary market exists in futures while no secondary market in
forwards.
- Larger number of participants compared to forward
contracts.
Disadvantages of futures over forwards.
- Don't have any control over future events.
- Transaction cost is high in futures while there is no
transaction cost in forwards.
- Price fluctuations happened in future contracts