Futures vs forwards: which instrument should a trader choose?

The cryptocurrency market offers a multitude of ways to earn, but not all of them are equally safe. If you've heard about futures and forward contracts but don't understand the difference — you're not alone. Let's break it down simply.

How did it all begin?

Forward contracts are not a new invention. Several centuries ago, farmers made agreements with merchants: “You pay me $10 for a sack of grain that I will give you in six months.” This was a way to hedge against price fluctuations. And you know what? This principle works today as well.

Forward: when everything is between us

A forward contract is simply a private agreement between two parties. You can agree on anything: price, contract size, asset. No intermediary fees, no exchange.

Pros:

• Cheaper than futures
• Flexible terms
• Full confidentiality

Cons:

• Huge counterparty risks ( what if the partner doesn't pay?)
• Low liquidity (it's hard to find someone who will play with you)
• No regulation

Futures: when everything is by the exchange rules

Futures contracts are a completely different story. They are standardized, traded on an exchange through a clearinghouse. The exchange has set the conditions: which asset, contract size, settlement prices. You simply choose from the options provided.

Important point: the clearing center acts as an intermediary. If you bought a contract, you are trading not with a specific trader, but with the exchange. This protects both parties.

Pros:

• Transparency: all terms are known
• Liquidity: many participants, easy to enter/exit
• Reliability: the counterparty risk is minimal
• Daily revaluation of positions

Cons:

• More expensive than ( commission, margin call )
• Non-flexible conditions
• Initial margin required

What to pay attention to: margin call

In futures, you need to put up margin — insurance to cover losses. If the price goes against you and the balance falls below the minimum, the exchange will require you to top up your account (margin call). If you don't top up — the position will be automatically closed. In forwards, this is not the case, but there is a risk of not paying at the end of the contract.

Who is suitable for what?

Forwards are better:

• When is the delivery of goods needed
• For large wholesale transactions
• When the price of your contract is very unusual

Futures are better:

• For an ordinary trader (simplicity and security)
• When liquidity is needed
• If you are not sure about the partner
• For speculation ( shorts, leverage )

Conclusion

If you are new to crypto — forget about forwards. Futures on the exchange are safer and clearer. Yes, they are more expensive, but you won't incur losses because the counterparty refused to pay. And that's the main thing.