03 February 2010
Forwards: A forward contract is a customized contract between two entities, where settlement takes place on a specific date in the future at today’s pre-agreed price. Eg. Contract between A & B where B agrees to Buy 100 shares at the rate of 15 on a specified date (say 31st March). Here date is specified and agreed price is defined today.
Futures: A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts, such as futures of the Nifty index. Eg. Contract between A & B where B purchases a future to buy or sell at a certain date (say 31st March) and at the price on that certain date.