Go Ad-Free on CAclubindia with Daily Mobile Updates. Subscribe Now!

Difference

Sanmitra Sanjeev Ratnaparkhi (-) (223 Points)

09 May 2014

Difference between forward contracts & future contracts?

Reply
Follow
Share

4 Replies

CA Rajesh Pabari (Chartered Accountant) (1975 Points)
Replied 09 May 2014

Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell a specific type of asset at a specific time at a given price. However, it is in the specific details that these contracts differ. First of all, futures contracts are exchange-traded and, therefore, are standardized contracts. Forward contracts, on the other hand, are private agreements between two parties and are not as rigid in their stated terms and conditions. Because forward contracts are private agreements, there is always a chance that a party may default on its side of the agreement. Futures contracts have clearing houses that guarantee the transactions, which drastically lowers the probability of default to almost never.

Upgrade to CAclubindia Pro. Subscribe Now!

CA Rajesh Pabari (Chartered Accountant) (1975 Points)
Replied 09 May 2014

Best place to search such things is investopedia website.

1 Like

CMA T Jagadeesh (Manager - Finance & Accounts) (106 Points)
Replied 09 May 2014

Please check the attachment for details..Jagadeesh

Attached File : 177978 1315623 forward contract vs futures contract difference and comparison.pdf downloaded: 149 times

1 Like

lokesh prajapat (audit assistant) (22 Points)
Replied 14 June 2014

basicly both are same but when we talk about future contract... its standardized nature, traded by exchange, thats why there is less risk rather than forward contract..while forward contract is costumized nature, works with counter party (same as private agreement) ..hence it is more risky than future contract.