What is the difference between a future contract and a forward contract?

While a futures contract is a standardized agreement that can be traded on an exchange, a forward contract is simply a private agreement between a buyer and a seller. While it is possible to trade forwards on OTC markets, they are less regulated and less accessible to retail investors.

What are the different types of future contracts?

A futures contract is a legal agreement that binds a buyer and a seller to trade specific assets at a predetermined price and date in the future. There are four common types: currency, stock market index, commodity, and interest rate futures. It is used for speculative and hedging purposes since it helps to lock in a specific price.

How is a future contract settled?

Sometimes, futures contracts are physically settled, but most often they are cash settled. The difference is that when a contract is physically settled, the actual good that was bought was delivered. If that were the case for Southwest, thousands of barrels of oil would be delivered to them on the date of the contract.