Forward and Futures Contracts
Completion requirements
One derivative contract is a forward contract, where parties agree to trade assets at a future date at a specified price. Both forward and futures contracts are similar in terms of their nature. However, future contracts are standardized agreements, unlike forward contracts. These videos (along with the attached slides) discuss financial futures contacts in detail, including how to calculate payoffs. What are some other differences between forward contracts and futures contracts, and what determines forward and futures prices?
Finance Theory
Key Points
- Forward and futures contracts are zero-NPV contracts when initiated
- After initiation, both contracts may have positive/negative NPV
- Futures contracts are "marked to market" every day
- Futures and forwards are extremely liquid
- Hedging and speculating are important applications of futures/forwards