What Is the Key Difference between a Forward Contract and a Futures Contract?

The key difference between a forward and a futures contract lies in their standardization and trading venue. Futures contracts are standardized in terms of quantity, quality, and delivery date, and are traded on public exchanges.

This standardization makes them highly liquid. In contrast, forward contracts are private, customizable agreements between two parties and are traded over-the-counter (OTC).

This customization offers flexibility but also introduces higher counterparty risk and lower liquidity compared to futures.