In the past few months, we've talked about fundamental vocabulary, the idea of trading, making markets, retreating, and the different markets that exist. With the fundamentals of trading out of the way, let's dig into some of the slightly more complicated concepts: forwards and futures.

A forward contract (or simply forward) is a contract between two parties to buy or sell an asset at a specified time in the future for a priced agreed upon today.

An subset of forward contracts is futures contracts. A futures contract (or simply future) is exactly the same thing as a forward, except it is standardized, regulated, and traded on an exchange.

Here's an example of a forward contract. I'll give you $5 tomorrow if you give me a cup of coffee tomorrow morning -- Here, the two parties would be you and me; the contract is for me to give you$5 (the price agreed upon today) so I can receive a cup of coffee from you tomorrow (specified time in the future). In this context, you would be the seller of the forward contract since you received a predetermined price (money) and promised to deliver at a later date, and I would be the buyer. You and I can hash out the details of what type of coffee, where the delivery will take place, and more.

Whether you're aware or not, large banks will trade with each other in a similar manner, buying and selling financial instruments (commodities, currencies, risk) "over-the-counter" without any supervision of an exchange.

With a futures contract, all the details are already hashed out by the exchange. The exchange publishes these standards and calls them contract specifications