Is a forward contract better than a futures contract?

The credit risk in a forward contract is relatively higher that in a futures contract. Forward contracts can be used for both hedging and speculation, but as the contract is tailor made, it is best for hedging. Conversely, futures contracts are appropriate for speculation.

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

Futures exchanges also provide price transparency; prices for forward contracts are only known to the trading parties. Futures are regulated by a central regulatory authority like the CFTC in the United States. On the other hand, forwards are governed by the applicable contract law.

Can a forward contract be used for hedging?

A forward contract can be used for hedging or speculation, although its non-standardized nature makes it particularly apt for hedging . A forward contract is a customizable derivative contract between two parties to buy or sell an asset at a specified price on a future date.

What is a futures contract?

A futures contract has standardized terms and is traded on an exchange, where prices are settled on a daily basis until the end of the contract. There is no oversight with respect to forward contracts, while futures are regulated by the Commodity Futures Trading Commission (CFTC).