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Question of the Week - Derivatives

AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
edited April 2015 in Level 1 Questions
Which of the following would most likely be a reason to use a forward contract rather than a futures contract?

Question of the Week - Derivatives 53 votes

Greater liquidity
1%
Acefromspace 1 vote
Ability to customize
92%
hairyfairyJaminioSilvaLeChiffrembnmichael17AndrewKokAdaptPrepsnowbirdrsparksPiaRandallK27TradeBaronpaynec1googs1484ThomasWCFAI_wont_stop_meEQ_Arbitragerdxmvibs71hamiltonsophiamuller 49 votes
Lower counterparty default risk
5%
rayrlee2000shathicpark0391 3 votes

Comments

  • AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
    Ability to customize

    Greater liquidity and lower counterparty default risk are advantages for futures contracts over forwards.

    On the other hand, forward contracts allow much more customization than futures contracts. You can draft a forward contract for almost anything, whereas futures contracts are limited to the current market offerings.

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