Derivatives: introduction to futures and forwards: fundamental differences between a futures and a forwards contract
- While futures contracts are traded on an investment exchange, forward contracts are traded ‘off-exchange’ or over-the-counter.
- A futures contract represents a standardised contract with fixed terms, to buy or sell an underlying asset at a specified future date at a pre-determined and agreed price which is set at the time of the contract. A forwards contract is a non-standardised private agreement between two parties to buy or sell an asset at a specified future date at a price which will be determined at an advance date but before the date of settlement.
- Unlike a futures contract, the rights to a forwards contract once issued, cannot be transferred or secondary traded on an investment exchange.
See STSM112100 for the meaning of an ‘Over-The-Counter’ (OTC) transaction.