A futures contract is a variation of a forward contract that has effentially the same basic defination but some aditional fetures that cleartly distinguish it from a forward contract.
A Futures contact is not a private and customized transaction. it is a public, standardized transaction that takes place in a futures exchange.
A futures exchange, like a stock exchange, is an organisation that provides a facility for engaging in futures transactions and establishes a mechanism through which parties can bug and sell these contracts.
The contracts are standardized which means the exchanges determines the expiration dates, the underlying, how many units of the underlying are included in one contract, and other various terms and conditions.
The most important distinction between a futures contract and a forward contract is the default risk associated.
The futures exchange guarantees to each party that if the other fails to pay, the exchange will pay.
The clearing house protects itself by requiring the parties to settle their gains and losses to the exchange on a daily basis, or what is known as daily settlement or mark to market.
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