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Forwards vs. Futures contracts


  • Not traded on exchanges
  • Are private agreements between two parties and are not as rigid in their stated terms and conditions
  • Credit risk is high
  • High customization
  • Settlement at the end of contract and on a
  • specific date
  • Mostly used by hedgers that want to remove the volatility of the underlying, hence delivery / cash settlement usually takes place


  • Traded on exchanges
  • Standard contracts
  • Clearing house and daily mark to market reduces credit risk
  • Settlement can occur over a range of dates
  • Usually closed out before maturity and hardly any deliveries happen

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