Feb-02-2026
In the derivatives ecosystem, forward and futures contracts are core risk-management tools. While both aim to hedge price volatility, their structure, risk profile, and execution model are fundamentally different. Let’s break it down — no fluff, just signal.
A forward contract is a customized agreement between two parties to buy or sell an asset at a fixed price on a future date.
Traded over-the-counter (OTC)
Fully customizable (price, quantity, date)
No daily settlement
Higher counterparty risk
Typically used by corporates and institutions
Use Case:
Importers/exporters locking in exchange rates to hedge currency risk.
A futures contract is a standardized agreement traded on a recognized exchange to buy or sell an asset at a future date at a predetermined price.
Traded on regulated exchanges
Standardized contracts
Daily mark-to-market settlement
Backed by clearing corporation
High liquidity and transparency
Use Case:
Retail and institutional traders hedging or speculating in commodities, indices, or stocks.
| Basis | Forward Contract | Futures Contract |
|---|---|---|
| Trading Platform | OTC (Private) | Exchange-Traded |
| Contract Size | Custom | Standardized |
| Counterparty Risk | High | Very Low |
| Settlement | On Maturity | Daily MTM |
| Liquidity | Low | High |
| Regulation | Unregulated | Highly Regulated |
| Margin Requirement | No | Mandatory |
Pros
Fully tailored contracts
Ideal for long-term hedging
Cons
Counterparty default risk
Low liquidity
Pros
Transparent pricing
High liquidity
Reduced credit risk
Cons
Less flexibility
Daily margin obligations
Choose Forward Contracts if:
You are a corporate hedger
You need customization
You’re managing long-term exposure
Choose Futures Contracts if:
You’re an active trader
You want liquidity and transparency
You need regulated risk management
At AGSSL, we simplify complex market instruments into actionable insights. Whether you’re hedging risk or scaling trading strategies, our knowledge center keeps you market-ready — always.
📩 For queries or expert support: info@agssl.in
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