Skip to content

NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Forwards and Futures

Which feature distinguishes a stock futures contract traded on an exchange from a forward contract on the same stock?

An exchange-traded futures contract is standardised in lot size and expiry, and the clearing corporation guarantees its performance by acting as counterparty to both sides. Forwards, in contrast, are privately negotiated, carry bilateral default risk and are not marked to market daily.

  1. AContract terms are negotiated privately between the two parties
  2. BContract is standardised and the clearing corporation guarantees performanceCorrect
  3. CThere is no daily settlement of gains and losses
  4. DCounterparty default risk rests entirely with the other party

Explanation

Exchange-traded futures have standardised lot size and expiry, and the clearing corporation becomes the counterparty to each trade, guaranteeing performance. The other options describe forwards: private negotiation, no daily settlement and bilateral counterparty risk.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Forwards and Futures shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Forwards and FuturesFree diagnostic mock

More Introduction to Forwards and Futures questions