You're trying to invest in commodities. How do you decide between a forward and a futures contract?

Not trying to be snarky, but if you don't know the difference between futures and forwards, you probably shouldn't be trading either...

Forwards and futures are both types of financial contracts used for trading commodities, but they have key differences. Forwards are customizable agreements between two parties to buy or sell a commodity at a predetermined price and date in the future. They are traded over-the-counter (OTC) and are not standardized, offering more flexibility but also carrying counterparty risk. Futures, on the other hand, are standardized contracts traded on exchanges, specifying the quantity, quality, and delivery date of the commodity. They offer liquidity, transparency, and lower counterparty risk due to the clearinghouse mechanism.

To trade a Forward you need a credit line with a bank or commodity trading firm that will provide credit. TO trade a future you need to trade through an FCM and post margin

Both of them are good, to make it better it depends on you , the more time and money you spend on it the better it become. Learn more, practice more and experience more will make it better and better , and more useful then you will get more benefits on it

It depends on the risk outlook concerning the underlying asset and to carry out an up-to-date evaluation of market conditions.

Investors choose between forwards and futures contracts based on their specific needs and preferences. Forwards offer customization in terms of contract terms and are traded over-the-counter, providing flexibility but also exposing parties to counterparty risk. Futures contracts, traded on exchanges, are standardized, offering liquidity, transparency, and lower counterparty risk due to the presence of a clearinghouse. Investors may opt for forwards for tailored agreements or futures for ease of trading, liquidity, and risk mitigation. Ultimately, the decision depends on factors such as risk tolerance, liquidity requirements, and desired level of customization.

Using forwards and futures can help enities to - take out volatility (e.g. in energy markets nowadays) - average the dollar $/€ spend - make better preditctions for internal budgeting processes

Futures, as mentioned, have set volumes per contract. Forwards give flexibility in this regard. Futures are exchanged traded derivatives which provide the backing of the exchange through clearing members thus, guaranteeing the trade. When entering into forwards, the creditworthiness of your counterparty is on your to determine. Both will have delivery locations and the onus is on each party to ensure that delivery occurs, the cost of which is on each respective counterparty.

A forward contract is not formally regulated, on the contrary, a futures contract is regulated by the stock exchange. In addition: the risk with futures trading comes from the feature of leverage.Lack of respect for leverage is the common cause for losses in futures trading.

To illustrate the choice between forwards and futures, consider an investor looking to hedge against rising oil prices. If they prefer a customized contract with specific terms and are comfortable with counterparty risk, they might opt for a forward contract with an oil producer. However, if they prioritize liquidity, transparency, and lower counterparty risk, they may choose to trade oil futures contracts on a commodities exchange. The decision depends on factors such as the investor's risk tolerance, liquidity needs, and preference for customization versus standardized contracts.

In terms of trading, exchange cleared futures are more liquid and transparent. Single lots can be traded which allows small traders to take positions or manage commodity risk.

Forwards are generally used by commercial entities, i.e., those who produce or consumer the commodity. They are physically settled by the exchange of the commodity and subsequent payment. Whereas, only about 2% of futures contracts result in physical delivery.

When deciding between a forward and a futures contract for investing in commodities, consider factors such as customization needs, counterparty risk tolerance, liquidity requirements, transaction costs, and regulatory considerations. Forwards offer customization but entail counterparty risk and potentially higher costs, while futures contracts provide standardized terms, lower counterparty risk, higher liquidity, and regulatory oversight. Assess your specific preferences and risk tolerance to determine which contract aligns best with your investment objectives.

Standard cleared contracts are transparent and provide the user to create effective strategies based on their view or goal. Single counterparty “exotics” which are not exchange cleared usually have a hidden or embedded risk that is undervalued by the user while properly valued by the dealer creating a profit for the dealer.