Next video:
Loading the player...

Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price. But they have subtle differences.

Futures contracts are traded on exchanges, making them standardized contracts. Forward contracts are private agreements between two parties to buy and sell an asset at a specified price in the future. There’s always the chance one party in a forward contract may default. Futures contracts have clearing houses that guarantee the transactions.

Forward contracts are settled on one date at the end of the contract. Futures contracts are marked-to-market daily, which means their value is determined day-by-day until the contract ends. Futures contracts can settle over a range of dates.

Speculators who bet on the direction an asset’s price will move, often use futures. Futures are usually closed out prior to maturity, and delivery rarely occurs. Hedgers mainly use forwards to eliminate the volatility of an asset’s price. Asset delivery and cash settlement usually take place.

  1. No results found.
Related Articles
  1. Investing

    How to Trade Futures Contracts

    Futures is short for Futures Contracts, which are contracts between a buyer and seller of an asset who agree to exchange goods and money at a future date, but at a price and quantity determined ...
  2. Investing

    Trading Gold and Silver Futures Contracts

    If you are a hedger or a speculator, gold and silver futures contracts offer a world of profit-making opportunities.
  3. Investing

    Investing in Crude Oil Futures: The Risks and Rewards

    Learn about the risks and rewards of trading oil futures contracts. Read about a few strategies to limit the risk in trading oil futures contracts.
  4. Managing Wealth

    How Do Futures Contracts Work?

    Futures contracts are one of the most important financial innovations in history, but they are often misunderstood. Find out how this contract is used to transfer risk between different parties. ...
  5. Investing

    What's The Difference Between Options And Futures?

    An option gives the buyer the right, but not the obligation, to buy or sell a certain asset at a set price during the life of the contract. A futures contract gives the buyer the obligation to ...
  6. Trading

    Futures, Derivatives and Liquidity: More or Less Risky?

    Futures and derivatives get a bad rap after the 2008 financial crisis, but these instruments are meant to mitigate market risk.
  7. Investing

    Is USO a Good Way to Invest in Oil?

    The United States Oil Fund is better suited to short-term investors who actively manage their portfolios.
Hot Definitions
  1. Earnings Per Share - EPS

    Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock.
  2. Trustee

    A person or firm that holds or administers property or assets for the benefit of a third party. A trustee may be appointed ...
  3. Gross Domestic Product - GDP

    GDP is the monetary value of all the finished goods and services produced within a country's borders in a specific time period, ...
  4. Debt/Equity Ratio

    The D/E ratio indicates how much debt a company is using to finance its assets relative to the value of shareholders’ equity.
  5. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange.
  6. Net Present Value - NPV

    Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows ...
Trading Center