What Is a Forward Contract and How Does It Differ from a Futures Contract?
Both are agreements to buy or sell an asset at a predetermined price on a future date. A Forward Contract is a private, customizable agreement traded Over-The-Counter (OTC), meaning it carries counterparty risk.
A Futures Contract is a standardized agreement traded on an organized exchange, which mitigates counterparty risk through a clearing house. Futures require a margin account and are marked-to-market daily, unlike forwards.
