What is the primary difference between a 'future contract' and a 'forward contract'?

Question: What is the primary difference between a 'future contract' and a 'forward contract'?

Answer options:

• Futures are customizable and traded over-the-counter, while forwards are standardized and exchange-traded. ✅ Futures are standardized and exchange-traded, while forwards are customizable and traded over-the-counter.
• Futures have an obligation to buy/sell, while forwards provide just the option.
• Forwards are always settled in cash, while futures are always settled by physical delivery.

Correct answer: Futures are standardized and exchange-traded, while forwards are customizable and traded over-the-counter.

Explanation: Futures contracts are standardized, traded on exchanges, and subject to daily marking-to-market. Forward contracts, in contrast, are customized, traded over-the-counter (OTC) between two parties, and do not necessarily involve daily settlements.