Equity Future and Forward

An equity future or forward contract is an agreement between two parties to buy a specific number of equity stocks, stock index or basket at a given price (called strike price) at a given date. A future takes place on an organized exchange where the all of the contract's terms and conditions, except price, are formalized. The future's standardization helps to create liquidity in the marketplace enabling participants to close out positions before expiration. Equity forward contract is traded over the counter (OTC).  They are customized to meet the user's special needs. Forwards have credit risk, but futures do not because a clearing house guarantees against default risk.