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Forwards Contract:
A forward contract is the simplest of the Derivative products. It is a mutual agreement between two parties, in which the buyer agrees to buy a quantity of an asset at a specific price from the seller at a future date. The Price of the contract does not change before delivery. These type of contracts are binding, which means both the buyer and seller must stay committed to the contract. This means they are bound to deliver or take delivery of the product on which the forward contract was agreed upon. Forwards contracts are very useful in hedging.
Important Characteristics of Forwards Contracts:
1. They are Over the counter (OTC) contracts
2. Both the buyer and seller are bound by the contractual terms
3. The Price remains fixed
Limitations of Forwards contracts:
1. Lack of centralized trading. Any two individuals can enter into a forwards contract
2. Lack of Liquidity
3. Counterparty risk - The case wherein either the buyer or seller does not honour his end of the contract.
Futures Contract:
A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values.
An Example of a futures contract would be an agreement to 100 tonnes of Steel at Rs. 10000/- per tonne at some date say in December 2008. If no interim payments are made and if the price of Steel moves violently, a considerable credit risk could build up. To avoid this a margin system is used by the exchanges. As per the margin system, both parties must deposit a small sum with the exchange. This amount will be a small percentage of the total contract. This amount is called the initial margin. As the steel value changes, the contract value also changes. If the contract value changes, the margin must be topped up by an amount corresponding to the change in price of steel. The margin money is the property of the person who deposits it and would be returned to them if the contract gets cancelled/completed.
Characteristics of Futures contract:
1. They are traded in organized exchanges
2. Credit risk is eliminated with the margin system. Both parties deposit a portion of the contract with the clearing house.
3. Both the buyer and seller are bound by the contract terms and are expected to honour their end of the contract.
What else can I help you with?
Explain the difference between forward contracts and futures contracts?
Forwards Contract: A forward contract is the simplest of the Derivative products. It is a mutual agreement between two parties, in which the buyer agrees to buy a quantity of an asset at a specific price from the seller at a future date. The Price of the contract does not change before delivery. These type of contracts are binding, which means both the buyer and seller must stay committed to the contract. This means they are bound to deliver or take delivery of the product on which the forward contract was agreed upon. Forwards contracts are very useful in hedging Futures Contract: A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values. Difference: Futures are traded in Organized Exchanges while Forwards are Over-The-Counter (OTC) traded
Explain the difference between a call option and a long position in a futures contract?
The only difference between a long call option and a long futures position is the derivative itself--one of them is an option, the other is a futures contract.
What are the similarities between a forward contract and afutures contract?
Forwards Contract: A forward contract is the simplest of the Derivative products. It is a mutual agreement between two parties, in which the buyer agrees to buy a quantity of an asset at a specific price from the seller at a future date. The Price of the contract does not change before delivery. These type of contracts are binding, which means both the buyer and seller must stay committed to the contract. This means they are bound to deliver or take delivery of the product on which the forward contract was agreed upon. Forwards contracts are very useful in hedging Futures Contract: A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values. Difference: Futures are traded in Organized Exchanges while Forwards are Over-The-Counter (OTC) traded
What is the difference between a forward contracts futures contracts and options?
Forwards and futures are essentially the same thing: a commitment to buy/sell at a certain date for a certain price. The difference is in futures contracts you're also committed to sell a certain quantity, whereas in a forward you're not.An options contract gives you the option, but not the obligation, to buy or sell. This is great if you're working with stocks. If you have a futures contract to buy 500 shares of Coca-Cola for $10 per share on January 15 and Coke closed at $8 on January 15, you just lost a thousand dollars. If you were long on a put with the same spread between strike and stock prices, you made $1000.Forwards and futures have a purpose in life--IF you're dealing commodities with the intention to use them. You make frozen pies. You know you need ten tons each of wheat, sugar and apples. If you have a futures contract for October delivery on all of those commodities, you know what your pies' materials value is going to be, hence you can publish a good price for your pies. But futures speculators--investors who buy futures with the intent of selling the product after delivery, or the contract to a producer (there is a secondary market in futures)--have a long and proud history of losing their asses on these, so I recommend against them as an investment vehicle.
Explain the difference between a put option and a short position in a futures contract?
Well, the first difference is the root difference between a futures contract and an option contract: in a futures contract you MUST complete the sale at the end of the contract (if you didn't buy it back before the settlement date) but in an option you CAN.Once we're past that, the short position in a futures contract--the person who has the item the contract is derived from, such as a thousand bushels of wheat--is the same as the buyer of a put. Both of them have the thing now, and will transfer title to it after settlement or exercise.
What are the key differences between FX futures and forwards?
The key differences between FX futures and forwards are that futures are standardized contracts traded on exchanges, while forwards are customized agreements traded over-the-counter. Futures have daily settlement and margin requirements, while forwards settle at the end of the contract period. Additionally, futures are more liquid and have greater transparency compared to forwards.
Basic difference between forward contract and future contract?
Futures are traded in Organized Exchanges while Forwards are Over-The-Counter (OTC) traded
Explain the difference between forward contracts and futures contracts?
Forwards Contract: A forward contract is the simplest of the Derivative products. It is a mutual agreement between two parties, in which the buyer agrees to buy a quantity of an asset at a specific price from the seller at a future date. The Price of the contract does not change before delivery. These type of contracts are binding, which means both the buyer and seller must stay committed to the contract. This means they are bound to deliver or take delivery of the product on which the forward contract was agreed upon. Forwards contracts are very useful in hedging Futures Contract: A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values. Difference: Futures are traded in Organized Exchanges while Forwards are Over-The-Counter (OTC) traded
Explain the difference between a call option and a long position in a futures contract?
The only difference between a long call option and a long futures position is the derivative itself--one of them is an option, the other is a futures contract.
What is the basic difference between a forward and future market?
A forward contract is a private and customizable contract that needs to be settled at the end of the agreement and is traded over the counter. A futures contract has standardized terms and is traded on an stock or commodity exchange, where prices are settled on a daily basis until the end of the contract.
What are the similarities between a forward contract and afutures contract?
Forwards Contract: A forward contract is the simplest of the Derivative products. It is a mutual agreement between two parties, in which the buyer agrees to buy a quantity of an asset at a specific price from the seller at a future date. The Price of the contract does not change before delivery. These type of contracts are binding, which means both the buyer and seller must stay committed to the contract. This means they are bound to deliver or take delivery of the product on which the forward contract was agreed upon. Forwards contracts are very useful in hedging Futures Contract: A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values. Difference: Futures are traded in Organized Exchanges while Forwards are Over-The-Counter (OTC) traded
What is future and forward contract?
Forwards Contract: A forward contract is the simplest of the Derivative products. It is a mutual agreement between two parties, in which the buyer agrees to buy a quantity of an asset at a specific price from the seller at a future date. The Price of the contract does not change before delivery. These type of contracts are binding, which means both the buyer and seller must stay committed to the contract. This means they are bound to deliver or take delivery of the product on which the forward contract was agreed upon. Forwards contracts are very useful in hedging Futures Contract: A futures contract is an agreement to buy or sell an asset at a certain time in the future at a specific price. The Contractual terms of the futures contracts are very clear. The Futures market was designed to solve the shortcomings in the forwards contracts. Unlike forwards, futures are traded in organized exchanges. They also use a clearing house that provides the necessary protection to both the buyer and the seller. The price of the futures contract can change prior to delivery. Hence, both participants must settle daily price changes as per the contract values. Difference: Futures are traded in Organized Exchanges while Forwards are Over-The-Counter (OTC) traded
What is the difference between a forward contracts futures contracts and options?
Forwards and futures are essentially the same thing: a commitment to buy/sell at a certain date for a certain price. The difference is in futures contracts you're also committed to sell a certain quantity, whereas in a forward you're not.An options contract gives you the option, but not the obligation, to buy or sell. This is great if you're working with stocks. If you have a futures contract to buy 500 shares of Coca-Cola for $10 per share on January 15 and Coke closed at $8 on January 15, you just lost a thousand dollars. If you were long on a put with the same spread between strike and stock prices, you made $1000.Forwards and futures have a purpose in life--IF you're dealing commodities with the intention to use them. You make frozen pies. You know you need ten tons each of wheat, sugar and apples. If you have a futures contract for October delivery on all of those commodities, you know what your pies' materials value is going to be, hence you can publish a good price for your pies. But futures speculators--investors who buy futures with the intent of selling the product after delivery, or the contract to a producer (there is a secondary market in futures)--have a long and proud history of losing their asses on these, so I recommend against them as an investment vehicle.
What are the key differences between ES1 and ES2 futures?
ES1 and ES2 futures are both contracts that allow investors to speculate on the future price of the SP 500 index. The key difference between them is the expiration date. ES1 futures expire in March, June, September, and December, while ES2 futures expire in the months in between (February, May, August, and November). This difference in expiration dates can impact trading strategies and risk management for investors.
What is the difference between XP standard and enterprises?
Enterprises Has Alot More Futures If you Take a Tour ON it You will See.
What is the difference between the futures game and the MILB triple-a all-star game?
the futures game has A, AA, and AAA players. the AAA all star game just has AAA players
Explain the difference between a put option and a short position in a futures contract?
Well, the first difference is the root difference between a futures contract and an option contract: in a futures contract you MUST complete the sale at the end of the contract (if you didn't buy it back before the settlement date) but in an option you CAN.Once we're past that, the short position in a futures contract--the person who has the item the contract is derived from, such as a thousand bushels of wheat--is the same as the buyer of a put. Both of them have the thing now, and will transfer title to it after settlement or exercise.
