What is the difference between futures and forwards?
First, the transaction objects are different.
The trading object of futures is the standardized contract uniformly formulated by the exchange; The object of forward transaction is non-standardized contract, and the specific content of the contract (transaction type, quantity, price, location, etc.). ) negotiated by both parties.
Second, the function is different.
Futures trading can be used to avoid risks and find prices. The lack of liquidity in forward transactions limits the authority of prices and the dispersion of risks.
Third, different ways of expression.
Futures trading can choose physical delivery at maturity, or hedge liquidation within the agreed period, while forward trading is physical delivery.
Fourth, the credit risk is different.
The credit risk of futures is low, and the credit risk of forward trading is high.
Five, the deposit system is different
According to the regulations, both parties to futures trading must pay a certain margin (generally 5% to 15%) according to the regulations, and the amount of margin should be put in a special account. There is no specific provision for the margin of forward trading, and the payment amount shall be negotiated by both parties.
Sixth, the purpose is different.
Futures trading is the pursuit of risk return by producers and operators in order to transfer risks. Forward trading is different. The purpose of forward trading is to acquire or transfer the subject matter at some time in the future, usually with the main purpose of preserving value and maintaining profits.
To sum up, futures trading as a whole is more standardized than forward trading, that is, to some extent, although forward trading is the embryonic form of futures trading, it is still fundamentally different.