Forwards and Futures are type of derivative contract play an important role in economic

affairs because both agreements have the function to allow people to buy or sale financial

asset on a pre-arenged date in the future for a specific price.

However, the both markets differ each other.

A future contract is a standadrdised instrument and exchange-traded between two parties for

a future transaction .Forward contract, on the other hand is customised and traded over the

counter market usually between two financial intermidiaries on organized exchanges.

However, forwards are settled at maturity where both parties seller and buyer hedge against

the risk of future fluctuation of currency which exposed to credit risk because the value of the

contract is not conveyed until maturity.

In contrast with forwards,future contacts are market to market on daily settlement basis

where changes are settled day by day where both agents of the contract are require to deposit

margin and to minimize the risk through a default on a contract which lowered the credit risk.

Furthermore, exchange cleaning houses are involved in futures which ensure the transaction

while the market participans who exersice in forwards could defauld on one side of the

agreement because cleaning houses does not guarantee the transaction

Another differences between both contacts is that futures are highly liquid because they can

be sold and bought in the secondary market while the forwads are highly illiquid , not

negotiable and, there is no secondary market where to be traded.

Both contracts paly an essential role when it comes to the end of final purchase of

commodities or fianacial instruments.The major difference between both derivative implies

to the cash flow implications during the life of the agreement until delivery related to the

futures contract and the requirement of initial marging whithing futures. Althogh, they are

subject of speculation and hedging turn on anticipation of changes in interest rates and future

exchange of currency.Even thought from regulation point of view forward market is self

regulated in camprerison with the futures which is regulated by the Government.