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Futures or Forwards: Contract on Pork Bellies

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Would you rather own a futures contract or a forward contract on pork bellies?

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This solution discusses futures and forwards.

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If given the choice between owning a futures or a forward contract on pork bellies, I would prefer to have the futures contract. Both types of contracts have risks involved. I could make or gain money with either one. However, unlike the forward contract, the futures contract is marked to market on a daily basis which eliminates most counter-party risk. What that means is that ...

Solution provided by:
Robert Reinhart, MBA
Education
  • MBA, Merage School of Business, Univ of Cal, Irvine
  • BA, Univ of Cal, Irvine
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