DIFFERENCES BETWEEN

FORWARD, FUTURES AND

OPTIONS
 DIFFERENCES BETWEEN FORWARD,
FUTURES AND OPTIONS

 
Forward Futures Options
Contract Future Future Future
agreement that agreement agreement
obliges the that obliges where the
buyer and seller the buyer and seller is
seller obliged, but
the buyer has
an "option"
but not an
obligation
 DIFFERENCES BETWEEN FORWARD,
FUTURES AND OPTIONS

 
Forward Futures Options
Contract Depending on Standardized Standardized
Size the transaction
and the
requirements of
the contracting
parties.
 DIFFERENCES BETWEEN FORWARD,
FUTURES AND OPTIONS
 
Forward Futures Options
Expiry Depending on Standardized Standardized.
Date the transaction American
style options
can be
exercised at
any time.
European
style options
can only be
exercised at
expiry.
 DIFFERENCES BETWEEN FORWARD,
FUTURES AND OPTIONS

 
Forward Futures Options
Transaction Negotiated Quoted and Quoted and
method directly by traded on the traded on the
the buyer and Exchange Exchange
seller
 DIFFERENCES BETWEEN FORWARD,
FUTURES AND OPTIONS

 
Forward Futures Options
Contract Depending on Standardized Standardized
Size the transaction
and the
requirements
of the
contracting
parties.
  
Forward Futures Options
Guarantees None. Both parties The buyer
It is very must deposit pays a
difficult to an initial premium to
undo the guarantee the seller.
operation; (margin). The The seller
profits and value of the deposits an
losses are operation is initial
cash settled marked to guarantee
at expiry. market rates (margin). The
with daily underlying
settlement of asset can be
profits and used as
losses. guarantee.
 DIFFERENCES BETWEEN FORWARD,
FUTURES AND OPTIONS

 
Forward Futures Options
Secondary None. It is Futures Options
Market difficult to Exchange. Exchange.
quit the Operation Operation
operation; can be quit can be quit
profit or loss prior to prior to
at expiry. expiry. Profit expiry. Profit
or loss can be or loss can be
realized at realized at
any time. any time.
 DIFFERENCES BETWEEN FORWARD,
FUTURES AND OPTIONS

 
Forward Futures Options
Institutional The Clearing Clearing
Guarantee contracting House House
parties
 DIFFERENCES BETWEEN FORWARD,
FUTURES AND OPTIONS
  Forward Futures Options
Settlement Cash settled. Contracts are When a long
usually closed position is
prior to expiry exercised it may
by taking a be settled by
compensating delivery or cash
position. At settled. A long
expiry contracts position which
can be cash is out-of-the-
settled or money is
settled by usually
delivery of the cancelled prior
underlying. to expiry.