Define a Forward Contract and How It Differs from a Futures Contract.
A forward contract is a private agreement to buy or sell an asset at a specified future date and price. It is customized and traded over-the-counter (OTC).
A futures contract is a standardized agreement to do the same, but it is traded on an exchange. Futures contracts are subject to daily marking-to-market and are cleared by a clearing house, which reduces counterparty risk.
Forwards have higher counterparty risk.
Glossar
Forward Contract
Structure ⎊ A forward contract, within cryptocurrency and financial derivatives, establishes a customized agreement for the future exchange of an asset at a predetermined price and specified date.
Futures Contract
Leverage ⎊ Futures contracts in cryptocurrency represent agreements to buy or sell an underlying asset at a predetermined price on a future date, functioning as a derivative instrument that allows for amplified exposure without immediate asset ownership.
Private Agreement
Provision ⎊ This denotes a specific term or clause within a bilateral arrangement that dictates the mechanics of the trade, often deviating from standardized exchange contracts.
Specified Future Date
Expiration ⎊ This term denotes the precise moment in time when a derivative contract, such as a futures contract or an option, ceases to exist or must be settled.