Difference between Futures and Forward Markets

Futures and forward markets both look into the future as far as pricing of asset is concerned because the pricing of these assets depend on outcome of certain events which may be favorable or unfavorable for the stock or the commodity which in question. Given below are some of the differences between futures and forward markets –

  1. The price of futures is marked to market at the end of every trading day and therefore everyday profit or loss is credited or debited to the trading member account whereas the price of forward contracts is not marked to market and settlement happens at the end of the contract period.
  2. Futures contracts are traded on exchanges which are organized and also well regulated whereas forwards are private contracts and there they are not regulated which makes them risky because of the counter party risk.
  3. Futures contracts are standardized in terms of quantity, price and other such variables whereas Forwards are customized arrangements and therefore there is no standardization which results in different contracts being traded differently.
  4. In futures there is presence of clearing house which acts as counter party to both the parties and therefore eliminates the risk of non performance of contracts while in forwards contracts there is no clearinghouse and thus the counter party risk is higher.
  5. Future market is more popular and large of number of transactions happen in this market as compared to forward market.
0 comments… add one

Leave a Comment


Related pages


what is the definition of current liabilitiespositives and negatives of urbanizationfounder of icici bankhorizontal takeovercross rate formulaveblen goods exampleswhat is the cost concept in accountingmixed economic system characteristicsmixed economy disadvantages and advantagesgaap full formprofitability ratios typesoverfull demandpaid salaries to employees journal entrywhat is conglomerate mergerwhat is the difference between cheque and draftmoney market hedge advantages disadvantagesdisadvantages of currencyadvantages and disadvantages of skimming pricingconcept of capmbluevsreddisadvantages of industrializationdegree of operating leverage formularetail banking vs wholesale bankingexplain cost push inflationunitary elastic demand exampleideal cibil scoredefinition of accrued incomeadvantages and disadvantages of capitalist economic systemassumptions of a perfectly competitive marketmixed economies advantages and disadvantagesadvantages of merger and acquisition pdfadvantages and limitations of marginal costingbrs statementdecentralized decision making advantages and disadvantagesjit production advantages and disadvantagespros of command economydefine conglomerate integrationmonopolistic economysecuritization of receivablesprivatelizationcredit sales accounting entrynon diversifiable riskadvantages and disadvantages of delegation in managementexamples of current assets and liabilitiesficitiousdebit card disadvantageswhat is debit note with examplefdi abbreviationcontingent liabilities examplewhat is a decentralised organisational structureskimming pricing advantages and disadvantagessubvention definitionhow to find errors in trial balanceadvantages and disadvantages capitalismthe downside of globalizationhorizontal integration benefitsadvantages and disadvantages of lifo and fifo in accountingdebentures in hindiadvantages of autocraticsecuritizing receivablesadvantages of centrally planned economyimportance of capital budgeting pdfwhat is factoring in financial managementintermediate goods economics definitiondiff between micro and macro economicswhat are the limitations of ratio analysistraditional economy advantages and disadvantagescapitalism weaknessesexplain the difference between fixed and variable costsdisadvantages of the gold standarddistinguish between systematic and unsystematic riskexamples of penetration pricingdemand loan interest rate