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Diff. between future and forward contracts?

MOHIT MAHAJAN (LCS, ACA) (2050 Points)

20 February 2008

Please specify the difference between 'Futures' and 'Forward Contracts' (TYPES OF FINANCIAL DERIVATIVES).

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9 Replies

neha sodhani (student) (934 Points)
Replied 20 February 2008

visit https://en.wikipedia.org/wiki/Futures_contract

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CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)
Replied 20 February 2008

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. The future date is called the delivery date or final settlement date. The pre-set price is called the futures price

CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)
Replied 20 February 2008

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. Therefore, the trade date and delivery date are separated. It is used to control and hedge risk, for example currency exposure risk (e.g., forward contracts on USD or EUR) or commodity prices (e.g., forward contracts on oil).

CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)
Replied 20 February 2008

Mohit if you read both the diffination than you find the difference ..ie.,.future contracts are traded in the stock exchange but forward contract is a mutual agreement