Derivative
This query is : Resolved
10 January 2014
please give me the simple example on forward contract and future contract. and state how these two differentiate from each other..?
10 January 2014
Forward Vs. Future Contracts:
Sl. # Feature Forward Future
1 Trading Forward contracts are traded on personal basis on telephone etc. Future contracts are traded in competitive environment
2 Size No standard size Standardised sizes
3 Organised Exchanges Traded in over the counter market Traded in organised exchanges at designated locations.
4 Settlement Takes place on the date agreed by parties Takes place daily through exchange clearing house.
5 Delivery date Delivery to be made as per agreed terms Delivery dates are fixed in cycles.
6 Transaction costs Based on bid and ask spreads Brokerage fee is there on both buy and sell orders
7 Mark to Market No such procedure Mark to market is done on daily basis
8 Margins No margins are required Margins are required.
9 Credit risk Credit risk is born by each party No credit risk.
Sl. # Feature Forward Future
1 Trading Forward contracts are traded on personal basis on telephone etc. Future contracts are traded in competitive environment
2 Size No standard size Standardised sizes
3 Organised Exchanges Traded in over the counter market Traded in organised exchanges at designated locations.
4 Settlement Takes place on the date agreed by parties Takes place daily through exchange clearing house.
5 Delivery date Delivery to be made as per agreed terms Delivery dates are fixed in cycles.
6 Transaction costs Based on bid and ask spreads Brokerage fee is there on both buy and sell orders
7 Mark to Market No such procedure Mark to market is done on daily basis
8 Margins No margins are required Margins are required.
9 Credit risk Credit risk is born by each party No credit risk.
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