Lesson: Forwards and Futures

In this lesson, dive into the world of forwards and futures as Nick Palazzolo, CPA, clarifies the characteristics and differences between these two types of derivatives. By comparing them to insurance policies, Nick makes these complex financial instruments more relatable, explaining how they allow investors to bet on the price of various commodities or stocks. He contrasts the customized, unregulated, and riskier nature of forwards, typically used by larger firms, with the standardized, regulated, and more common futures that are accessible to the general public on exchanges. Additionally, Nick illustrates the practicalities of futures contracts, including the roles of sellers, buyers, and intermediaries such as clearinghouses in managing risk and facilitating trust between parties.