What is the difference between currency futures and forward market?
Exchange traded futures as compared to forwards serve the same economic purpose yet differ in fundamental ways. An individual entering into a forward contract agrees to transact at a forward price on a future date. On the maturity date, the obligation of the individual equals the forward price at which the contract was executed. Except on the maturity date, no money changes hands. In the case of an exchange traded futures contract, mark to market obligations are settled on a daily basis. Mark to market is he practice of revaluing securities and financial instruments using current market prices and is most seen in the mutual fund industry where the current net asset value (NAV) gives the MTM price. Since the profits or losses in the futures market are collected / paid on a daily basis, the scope for building up of mark to market losses in the books of various participants gets limited.
