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Forex problem ca final
WHAT IS THE DIFFERENCE BETWEEN FORWARD AND FUTURE CONTRACT....PLZ IT IS URGENT
Replies (3)
Sabse main point- Forward contract me actual delievery hoti hai but future me nahi hoti. Sirf difference liya jata hai future me
Forward contracts are customized and future are standardized
forward contract me default ka risk hota hai but future me nahi hota as these are done thru stock exchanges... forward contract to ham dono bhi kabhi bhi kar sakte hai...
Future and options are derivatives but forward are normal contract...
Other things are similar...
I would be happy if some 1 tells any other difference...
as there are no technical diffrences between the two (as far as i have understood these)
| Definition | A forward contract is an agreement between two parties to buy or sell an asset (which can be of any kind) at a pre-agreed future point in time at a specified price. | A futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. |
| Structure & Purpose | Customized to customer needs. Usually no initial payment required. Usually used for hedging. | Standardized. Initial margin payment required. Usually used for speculation. |
| Transaction method | Negotiated directly by the buyer and seller | Quoted and traded on the Exchange |
| Market regulation | Not regulated | Government regulated market (the Commodity Futures Trading Commission or CFTC is the governing body) |
| Institutional guarantee | The contracting parties | Clearing House |
| Risk | High counterparty risk | Low counterparty risk |
| Guarantees | No guarantee of settlement until the date of maturity only the forward price, based on the spot price of the underlying asset is paid | Both parties must deposit an initial guarantee (margin). The value of the operation is marked to market rates with daily settlement of profits and losses. |
| Contract Maturity | Forward contracts generally mature by delivering the commodity. | Future contracts may not necessarily mature by delivery of commodity. |
| Expiry date | Depending on the transaction | Standardized |
| Method of pre termination | Opposite contract with same or different counterparty. Counterparty risk remains while terminating with different counterparty. | Opposite contract on the exchange. |
| Contract size | Depending on the transaction and the requirements of the contracting parties. | Standardized |
| Market | Primary & Secondary | Primary |
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