In: Finance
Discuss the difference between forward and future market
A future contract is an agreement between a buyer and seller to buy or sell an asset at a certain time in the future for a certain price. | |||
Similarly, a forward contract is also an agreement to buy or sell an asset at a particular time in the future for a certain price. | |||
The difference between forward and future contract are as follows: | |||
Forward | Future | ||
It is Private contract between two parties and is traded in over the counter market | Future contracts are traded on an exchange | ||
Forward contract asset size and type are not standardized | A future contract is standardized | ||
Gain or loss is realized at the maturity of the contract | Daily settlement of gain and losses i.e. marked to market | ||
Delivery of the asset usually takes place | The contract usually closes before the maturity | ||
It has usually one specific delivery date | It can have a range of delivery date | ||
There is a risk of default by the counterparty | There is no risk of default as the counterparty is the exchange | ||