Forward contracts and futures contracts are easily confused. The former refers to a contract in which both parties agree to exchange financial assets at a fixed price in the future and promise to trade in the future according to the current agreed conditions, while the latter refers to a standardized contract made by a futures exchange and agreed to deliver a certain quantity and quality of physical objects or financial commodities at a specific time and place in the future.
The main similarities and differences between forward contracts and futures are summarized as follows:
Forward contract of spread futures contract
Over-the-counter centralized market of trading places
The delivery method shall be determined by the exchange by the buyers and sellers themselves, and the delivery method, quantity, quality, time and place of the subject matter shall be regulated.
The price is negotiated by the buyers and sellers themselves, and the public bidding is held in the trading hall.
Most contracts are executed by spot delivery, and most future positions contracts are settled by reverse write-offs.
The settlement method is directly settled by the buyer and the seller, and the clearing house or clearing company is responsible for the settlement.
The credit risk of the transaction is borne by the buyer and the seller themselves, and the default risk is guaranteed by the clearing house. As the seller of the buyer and the buyer of the seller, the clearing house takes the risk of default and guarantees the performance of the contract.