Question

3. Which of the following statements about futures and forwards is most accurate? Futures a. Are subject to default risk, but forwards are not. b. Are individualized contracts, but forwards are standardized. C. Require that traders post margin in order to trade, but forwards typically require no cash transaction until the delivery date.

Answer 1

c. Futures requires that traders post margin in order to trade, but forwards typically require no cash transactions until the delivery date.

Future and Forward both are financial derivatives to buy or sell underlying asset on future date at specified price but both has some differences which are listed below

• Future is a standardized contract but Forward is tailor made contract.
• Future trade on stock exchange market but Forward trade on over the counter market
• Future contracts requires to pay initial margin to trade but Forward contract does not require initial market.
• Future contacts are highly liquid but Forward contract are not liquid.

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.