Crypto Future & Forward Contracts

2 years ago
3

Future and forward contracts (more commonly referred to as futures and forwards) are contracts that are used by businesses and investors to hedge against risks or speculate. Futures and forwards are examples of derivative assets that derive their values from underlying assets. Both contracts rely on locking in a specific price for a certain asset, but there are differences between them.

A forward contract is an obligation to buy or sell a certain asset: 1) At a specified price (forward price) 2) At a specified time (contract maturity or expiration date) 3) Typically not traded on exchanges. Sellers and buyers of forward contracts are involved in a forward transaction – and are both obligated to fulfill their end of the contract at maturity.

Futures are the same as forward contracts, except for two main differences: 1) Futures are settled daily (not just at maturity), meaning that futures can be bought or sold at any time. 2) Futures are typically traded on a standardized exchange.

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