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Forwards vs. futures 156

Futuresƒ

standardized products; exchange-traded

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relative low transaction cost

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relative low credit risk/default risk

Ä

liquid

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ruin risk: cash flow problems may result from marking to market

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interest rate risk due marking-to-market

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limited choice of contracts

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usually short maturities

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usually no (physical) delivery just cash settlement (often prior to maturity)

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better for speculating

Forwardsƒ

non-standardized products; tailor made contracts; OTC

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relative high transaction cost

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relative high credit risk/default risk

Ä

illiquid

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not applicable

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not applicable

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tailor made contracts

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longer maturities possible

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usually delivery or cash settlement

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better for hedging

Derivative securities: Futu

res - Forwards vs. futures