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

Because of their potential for default risk and lack of a centralized clearinghouse, forward contracts are not as easily available to retail investors as futures contracts. Both forward and futures contracts involve the agreement to buy or sell a commodity at a set price in the future. But there are slight differences between the two.

What are the key aspects of futures contracts?

Key Aspects of Futures Contracts 2. Comparing Futures and Forward Contracts The main difference between futures and forward contracts is that forward contracts are traded over-the-counter (OTC) and futures are exchanged in a futures market.

Can a forward contract be used for hedging?

A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging . A forward contract is a customizable derivative contract between two parties to buy or sell an asset at a specified price on a future date.

What is the difference between a futures contract and a fixed contract?

A futures contract, on the other hand, is a fixed contract traded on a futures exchange, like the New York Mercantile Exchange (NYMEX), which has margin requirements that back up the futures contract, effectively eliminating counterparty risk.