Key consideration for choosing a futures or forwards contract for hedging is that futures contacts are standardized contracts for large standardized amounts for hedging for specific delivery dates and particular types of hedging instruments, but futures contracts are very liquid and can be reversed at any time, while forwards contracts must be carried through and are not guaranteed by an exchange.

Question

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Futures contracts are standardized and can be easily traded on an exchange, while forwards contracts are typically customized and traded over-the-counter. Futures contracts can also be easily reversed or closed out, while forwards contracts must be carried through to expiration.

Key Consideration for Choosing a Futures or Forwards Contract for Hedging