Question

What is the difference between a forward contract and a futures contract?

You need to select ALL correct answers:
a.A forward is a contract that is traded on an exchange
b.A futures is a contract that is privately negotiated between two parties
c.A futures is a contract that is traded on an exchange
d.A forward is a contract that is privately negotiated between two parties

Answer 1

A forward contract is privately negotiated and customizable, while a futures contract is traded on an exchange and standardized with an upfront payment.

Step-by-step explanation:

The main differences between a forward contract and a futures contract are as follows:

1. A forward contract is privately negotiated between two parties, while a futures contract is traded on an exchange.
2. A forward contract is customizable and can be tailored to the specific needs of the parties involved, while a futures contract is standardized and has set terms and conditions.
3. A forward contract has no upfront payment, while a futures contract requires an upfront payment called a margin.