WHAT ARE FEATURES AND DIFFERENCE BETWEEN FORWARDS AND FUTURES

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abhishreshthaa

Abhijeet S
WHAT ARE FEATURES AND DIFFERENCE BETWEEN FORWARDS AND FUTURES

FUTURES CONTRACTS:

A “Futures” Contract is an exchange traded contract to buy or sell at a predetermined quantity of an asset on a predetermined future date at a predetermined price.


FEATURES :

  • Contract between two parties through an exchange

  • Price decided today

  • Quantity decided today

  • Margins are payable by both the parties

  • Circuit Filters are decided by the exchange

  • No counter party risk as Clearing Corporation becomes counter party to each trade.


DIFFERENCE BETWEEN FORWARDS AND FUTURES:

FORWARDS:

  • Standardized contract terms.

  • Requires margin payment.

  • Follows daily settlement.

  • Traded on exchanges.


FUTURES:

  • Customized contract term.

  • No margin payment.

  • Settlement at the end of the period.

  • OTC in nature.
 
Both futures and forwards are contracts that allow traders to buy or sell the underlying assets at a specified price on a specified date in the future. The main difference between the two is that while futures are standardized, exchange-traded contracts, forwards are private agreements between two parties. There are some other differences also, which have been very well explained on Investopedia.com (investopedia.com/ask/answers/06/forwardsandfutures.asp).

For F&O trading, you need to go through a broker who is authorized to buy and sell derivatives. GEPL, a stock broker firm, offers broking services in futures and options among other financial instruments.
 
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The difference between forward and futures is very minuscule yet, very important to know bot works simultaneously and both have their significance. However related to this concept confusion is normally but, once you get the concept then it is easy to understand.:SugarwareZ-053:
 
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