STSM117050 | Derivatives: introduction to futures and forwards: fundamental differences between a futures and a forwards contract

Trading Venues

While futures contracts are traded on an investment exchange, forward contracts are traded ‘off-exchange’ or over-the-counter.

Contract Terms

A futures contract represents a standardised contract with fixed terms to buy or sell an underlying asset on a specified future date at a pre-determined and agreed price which is set at the time of the contract.

In contrast a forwards contract is a non-standardised private agreement between two parties to buy or sell an asset on a specified future date at a price which will be determined at an advance date but before the date of settlement.

Transferability

Unlike a futures contract, the rights to a forwards contract cannot be transferred or secondary traded on an investment exchange once issued.

See STSM112100 for the meaning of an ‘Over-The-Counter’ (OTC) transaction.