forward and futures contracts option contracts short notes derivatives
Derivatives are an important part of the world's financial markets. Three examples of derivatives are futures contracts, forward contracts and option contracts. All of these derivatives reference an underlying security with an eye toward possible future changes in its value. However, there are important distinctions in the details of how these contracts are managed. What is the difference between forward and futures contracts? Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell a specific type of asset at a specific time at a given price. However, it is in the specific details that these contracts differ. First of all, futures contracts are exchange-traded and, therefore, are standardized contracts. Forward contracts, on the other hand, are private agreements between two parties and are not as rigid in their stated terms and conditions.
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