Futures contracts are similar to forward contracts where two parties agree to buy or sell an underlying asset at a predetermined price on a pre-specified date. The key difference between the two is that unlike a forward contract, which is traded over-the-counter, a futures contract is traded on an organized exchange. Just like a forward contract, a futures contract can also be deliverable or cash settled. Because a futures contract is traded on an exchange, it gives rise to a few more differences between futures and forwards. The following is a list of key differences: Futures contracts are traded on an exchange while forward contracts are privately traded. Since they are traded on exchange, futures contracts are highly standardized. Forward contracts, on the other hand, are customized as per the requirements of the counterparties. A single clearinghouse acts as the counterparty for all futures contracts. This means that the clearinghouse is the buyer for every seller a...