Difference between Futures and Forwards

Question

Accepted Answer

Futures and forwards are both types of derivative contracts, but they differ in terms of their standardization, trading platform, and settlement.

Futures contracts are standardized and traded on exchanges, while forwards are customized and traded over-the-counter.
Futures contracts have daily settlement and are marked-to-market, while forwards settle at the end of the contract period.
Futures contracts have lower counterparty risk due to the involvement of a clearinghouse, while forwards have higher counterparty risk.
Example: A futures contract for crude oil is traded on the Chicago Mercantile Exchange, while a forward contract for wheat is negotiated between two parties directly.

Accepted Answer

Forward is customized contract between two parties. buy or sell underlying asste at a specified date and agree rate in future

Future is standards contract between two parties. buy or sell underlying asste at a fixed rate and specified date

Forward contract is settlement on maturity date

Future contract is settlement on a daily basis

Forward contract is having high risk

Future contract is having low risk

Top State Street Global Advisors Associate L2 interview questions & answers