Forward and futures contracts are equivalent once they are adjusted for contract terms and liquidity.

Question

Quizplus · Accepted Answer

Forward and futures contracts are equivalent once they are adjusted for contract terms such as underlying asset, expiry date, and contract size, and liquidity. They both involve an agreement to buy or sell an asset at a predetermined price and date. However, futures contracts are exchange-traded, standardized, and have high liquidity, while forward contracts are customized, over-the-counter (OTC) agreements between two parties, and have low liquidity.

Forward and Futures Contracts Are Equivalent Once They Are Adjusted