Forward contracts and futures are very similar. A forward is an agreement to buy or sell:

  • a given quantity of a particular asset
  • at a specified future date
  • at a pre-agreed price.

The difference between a forward and a future is that a future is a publicly traded standardised contract, which lowers trading costs, prices more publicly visible, and other advantages of trading through exchanges (such a protection from counterparty default). The advantage of forwards is that they are available for a greater range of (anything in which there is a counterparty willing to trade).

Copyright Graeme Pietersz © 2005-2020