Agreement where one party agrees to buy a commodity at a specific price on a specific future date and the other party agrees to make the sale.
Future contracts are “marked to market” on a daily basis. Gains and losses are noted and money must be put up to cover losses.
No physical delivery of the underlying asset, just settle with cash for the difference between the contracted price and actual price on the expiration date.
Standardized instruments traded on exchanges while forward contracts are tailor-made between two parties and are not traded after they have been signed.