Forward contract is one of the earliest financial derivatives. The two parties to the contract agree to buy and sell related assets at an agreed quantity and price at a certain date in the future. Futures, whose English name is futures, is completely different from spot. Spot is actually a tradable commodity. Futures are mainly not commodities, but standardized tradable contracts based on some popular products such as cotton, soybeans and oil and financial assets such as stocks and bonds. Therefore, the subject matter can be commodities (such as gold, crude oil and agricultural products) or financial instruments.

The main differences between forward and futures:

1, the requirements of the contract are different. Forward contracts are non-standardized contracts, and futures contracts are standardized contracts;

2. Different pricing methods. Forward contracts are negotiated prices, and futures contracts are open bids. With the change of supply and demand, the transaction price is constantly changing.

3. Different settlement methods. Forward contracts are settled in one lump sum at maturity, while futures contracts are settled daily, which is the so-called "mark to market" system. Futures contracts calculate profits and losses according to different settlement prices, and adjust the amount of margin accordingly;

4. Different delivery methods. Forward contracts are delivered in kind, while futures contracts are mostly delivered by "hedging and closing positions", and physical delivery is rarely used;

5. Futures are standard contracts with specific contract terms, so they are usually traded in the exchange lobby; Forward is a contract agreed by both parties to the transaction, and there is no fixed clause format, so it is usually traded in the OTC market;

6. Futures are traded on the exchange and settled every day. There is a margin system, and the risk is relatively small; Forward OTC trading, without margin system, is relatively risky.

Tips: All financial derivatives investments are risky and require investors' financial risk management ability, which is not suitable for investors without professional financial knowledge. In addition to basic financial knowledge, investors should also control their risk tolerance and not invest blindly.

Reply time: 2021-12-15. Please refer to the latest business changes announced by Ping An Bank in official website.