A Future is an exchange-traded derivative which is similar to a forward. Both futures and forwards represent agreements to buy/sell some underlying asset in the future for a specified price. Both can be for physical settlement or cash settlement. Both offer a convenient tool for hedging or speculation. For little or no initial cash outlay, both instruments provide price exposure without a need to immediately pay for, hold or warehouse the underlying asset. In this sense, both instruments are leveraged. Futures and forwards trade on a variety of underlies: wheat, oil, live beef, Eurodollar deposits, gold, foreign exchange, the S&P 500 stock index, etc.
The fundamental difference between futures and forwards is the fact that futures are traded on exchanges. Forwards trade over the counter. This has three practical implications.
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