myz-vgb.ru A Business Encyclopedia

Difference Between Forward Contracts and Future Contracts

Definition: The Future Contracts are the standardized Forward Contracts wherein two parties mutually decide to sell or buy the underlying asset at a predefined future date and at a price locked today. These are considered as a less risky alternative of hedging against the currency market fluctuations.

If the future contracts are the forward contracts, then why it is considered as a separate tool of hedging? Well, these contracts do look alike but are different from each other. These differences are explained in the points given below:

  1. The forward contract is a more customized contract wherein the terms are negotiated between the buyers and sellers, whereas the future contract is a standardized contract where, date, quantity, and delivery conditions are standardized.
  2. The forward contracts have no secondary markets while the future contracts are traded on the organized exchange.
  3. In the case of a forward contract, usually, no collateral is required, whereas, in the case of a future contract the margin is required.
  4. The final settlement of the forward contracts is done on its maturity, whereas the future contracts are “marked to market” on a daily basis, which means the profits and losses of these contracts are settled daily.
  5. The forward contracts often end with the deliveries, whereas the futures are mostly settled with the differences.

Thus, it is quite clear from the above comparison that both the forward contracts and future contracts are different from each other and are used for different purposes.

Leave a Reply

Your email address will not be published. Required fields are marked *

Shares

Related pages


meaning of elasticity of supplycomputerised stock control systemsgeneral principles of management henri fayolethnocentrism meansprimal and dual linear programming problemssubscribed capital stock definitiontheory of egoismfiedler leadership styleexamples of quota samplingwindow joharimarketing segmentation basesdistribution of sample proportionmarginal cost curve definitiondonkey carrot stickindexation definitionhierarchical organizational structure definitioncarl rogers ideal selfsocial influence on consumer behaviordefine mncwhat is retrenchingfrictional unemployment definition economicscharacteristics of process costingoperant conditioning theory by skinnerbudgetary control definition wikipediaexplain the elasticity of demandautonomous multiplieremployee empowerment meaningconstant marginal utility of moneydefine transactionalneft batchesconnotation meaning in urducost push inflation is caused byethnocentric attitude examplestatutory reserve ratiomeaning of quota samplingtheory meaning in tamilpsychological barriers to listeningvictor vroom expectancy theorytypes of elasticity in economicsdefine demographic segmentationdefine elastic and inelastic demandcognitive learning process theorydivesting strategyspearman correlation coefficientsspeculation definition economicsmeaning of segmentation in marketingintrapreneurshipdefinition of delegatingchallenger marketingivan pavlov classical conditioning definitionforward contract definitioncyclical unemployment is defined as unemployment that results fromdefine quotasmarketing audit definitionrepo rate and reverse repo rate meaningwhat is meant by poachingjit systemsfree rein leadership definitiondefinition of karizmadisguised unemployment exampledifferentiated marketing definitionovercoming emotional barriers to communicationselection hrmoperant meansherzberg hygiene theorycalculate profit margin ratiohow to do manpower planningsnowball sampling methodwhat is debenture and its typesan oligopoly is an industry market structure withstratified proportional samplingentrepreneurial process definitionprovident fund of employeesubsistence theory of wages definitionlist of elastic and inelastic goodspert planning