Future vs Forward and which one is cheaper and why

Question

Accepted Answer

Future and forward contracts are both types of derivative contracts, but differ in terms of delivery date and settlement. Forward contracts are cheaper due to customization and lack of exchange fees.

Future contracts are standardized and traded on exchanges, while forward contracts are customized and traded over-the-counter.
Future contracts have specific delivery dates and settlement periods, while forward contracts have flexible delivery dates and settlement periods.
Future contracts are more liquid and easily tradable, while forward contracts may have less liquidity.
Future contracts involve exchange fees and margin requirements, while forward contracts do not have such costs.
For example, if an investor wants to hedge against the price of oil, they can use a future contract on a commodities exchange. However, if they want a customized contract with specific terms, they can enter into a forward contract with a counterparty.

Future vs Forward and which one is cheaper and why

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