Difference between Forward Contracts and Futures contract

FORWARD CONTRACTS FUTURE CONTRACTS

1. It is traded in over the counter market. It
lacks liquidity.
2. Terms are structured to suit both the
contracting parties.
3.Delivery price is the forward price and most
transactions result in delivery
4. Forward Positions are not easily offset or
transferred to other participants.
5. The settlement of a forward contract takes
place on the date of maturity so that profit
/loss are booked on maturity only.
6. .No organization guarantees the
performance of the counter party. chance of
default risk high.
7. No compulsion to make deposit in respect
of margin.
8. Participants are primarily institutions
dealing with one other and other interested
parties dealing through one or more dealer.
9. Contract price is not publicly disclosed and
hence not transparent.
10. Settlement of contract is usually made on
delivery basis on expiry of the contract.
1. It is traded in organized exchange. It
ensures liquidity.
2. Terms of contract are highly
standardized.
3. Delivery price is the spot price and
only a small percentage of contracts
resulting actual delivery.
4. Long and Short positions are usually
liquidated easily.
5. Future contracts are marked to
market daily so that the profits or losses
are settled daily.
6. Clearing house guarantees the
performance contracts . chance of
default risk less.
7.Traders have to deposit initial margin
irrespective of their trading position
8. Participants include banks,
corporations, financial institutions,
individual investors and speculators.
9. The contract price is open to all and
hence is transparent.
10.Here settlement of the contract is
mostly made on cash basis

Difference between options & futures/ forward

Sl.No. Basis Futures/ Forward Options
1. Payoff Linear Non – Linear
Only on seller of
Obligation to
2. Both buyer & seller option with sight to the
perform
buyer
OTC for forward, Both OTC and
3. Trading
exchange trade for futures. exchange trade
None for forward being None if OTC and as
OTC and as required by per exchange
4. Margin
exchange in case of requirement if
futures. exchange traded
5. Initial payment None Buyer pays premium to
 seller
Once on maturity for Daily if exchange
6. Settlement forward and daily for traded and once on
futures maturity if OTC