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, Over-The-Counter (OTC) agreement, customizable, and subject to counterparty risk.

A Futures contract is standardized, traded on an exchange, cleared through a clearing house, and has virtually no counterparty risk. Futures contracts also require daily marking-to-market.