Buying and selling the asset is a complex process without knowing the things. The futures contracts and forward contracts makes the traders buy the resource at a fixed price in the future.
Futures Contracts vs Forward Contracts
The difference between the futures contract and the forward contract is the time of the registration. The Futures contracts is an agreement between the two to buy the asset at a specific rate and time in the future. The forward contract is the agreement between two to obtain the resource at a manifest rate and time in the future. A futures contracts is a standard contract. It means the seller and buyer can’t negotiate the agreement. The forward contract is the tailor contract means the deal can be transmitted.
The futures contracts is the conventional contract. Bind at one time and execute at some other time. It is a deal to acquire the asset at a particular rate and time.
The forward contracts is a nonstandard agreement. It has the term to transmit the agreement at any time. The forward contracts is to buy the resource at an assured time at the agreed price.
|Parameters of comparison||Futures contracts||Forward contracts|
|Collateral||The futures agreement needs security.||The forward contracts doesn’t need collateral.|
|Regulation||The futures contracts regulated by the stock exchange||The forward contracts is self-regulated.|
|Liquidity||The futures contracts has high liquidity||The forward contracts has low liquidity.|
|Settlement||The futures contracts needs to settle daily.||The forward contracts settles on the settlement date.|
|Maturity||The futures contracts maturity is predetermined.||The forward contracts matured by terms of the agreement.|
|Size of contract||The futures contracts has a fixed size.||Depend on the terms, the size varies in the forward contract.|
What is Futures Contracts?
The standardized document referred to the future. The agreement makes to buy the asset in the future at a fixed amount at a specific time.
The futures agreement has a low market risk, and you settle daily, whether profit or loss. Unlike a forward contracts, It has a fixed size of a document for a contract.
What is Forward Contracts?
The forward contracts is a nonstandard agreement to buy the asset in the future. A pre-fixed time for the settlement at a fixed price is the forward contracts.
The forward contracts is transmitted to the traders directly, and it regulates by themselves. The forward contracts doesn’t need any security assurance in the initial stage.
The forward contracts gets the institutional guarantee for the parties. It gets matured once it settles to the respective parties. There is no expiration date but depends on the transaction, expiration occurs.
Main Differences Between Futures Contracts and Forward Contracts
- The futures contracts needs to settle daily, and the forward contracts rectified on the settlement date.
- The futures contracts maturity is predetermined, and the forward contracts matured by terms of the agreement.
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