Features of Forward and Futures Contracts

Forward Contracts:

Customization: The key feature is flexibility. Parties can negotiate all terms, including the underlying asset, quantity, price, and settlement date.
Over-the-Counter (OTC) Trading: Forwards are traded directly between parties, not on an exchange.
Private Transactions: The details of the contract are known only to the parties involved.
Counterparty Risk: Each party faces the risk that the other might default on their obligation. This risk is significant as there's no intermediary.
Illiquidity: Finding a counterparty willing to take the exact opposite position can be difficult, making it hard to exit a contract before maturity.
Settlement at Maturity: Gains and losses are typically realized only at the settlement date.
Usually held till expiry: Since it is difficult to find a counter party to close the contract before the expiry date, these contracts are generally held till expiry.

Futures Contracts:

Standardization: Contract terms (asset, quantity, quality, delivery location, and date) are standardized by the exchange, ensuring uniformity.
Exchange Trading: Futures are traded on organized exchanges, providing a centralized marketplace with price transparency.
Clearinghouse Guarantee: A clearinghouse acts as the counterparty to every trade, eliminating counterparty risk for individual traders. They guarantee the fulfillment of the contract.
Margin Requirements: Both buyers and sellers must deposit initial margin (collateral) and maintain a certain level of margin (maintenance margin) to cover potential losses.
Marking-to-Market: Contracts are marked-to-market daily, meaning gains and losses are calculated and settled at the end of each trading day. This prevents the accumulation of large losses and reduces the risk of default.
Liquidity: Standardization and exchange trading make futures contracts highly liquid, allowing traders to easily enter and exit positions.
Offsetting a position is easy: Since it is easy to find a counter party due to standardization and high liquidity, these contracts can be closed before expiry.