Question

A futures contract is more flexible and liquid than a forward contract. Explain why.

Answer 1

Future contracts are always tradable in nature and they are having the flexibility of getting out of the contract as and when the trader wants to, so it is a standardized kind of a contract in which the risk is appropriately defined and because there is continuous trading of futures on the stock exchanges, these are providing a more flexible and liquid option to the various parties.

forward contracts are customised contracts and they are not traded regularly in nature in order to have a continuous price discovering, so forward contracts are not that liquid.

So, it can be said that the future contracts are highly liquid and more flexible because they will offer an easyeasy entry and exit and they are also offering a high liquidity.