Forward vs Futures Contract Price and Value

Updated for the 2026-2027 CFA® Level I curriculum.

A forward contract and a futures contract can specify the same underlying asset, the same price, and the same expiration date. Yet their values behave differently as time passes. This difference comes down to one mechanical feature: daily settlement. Understanding it lets you correctly answer questions about contract value at any point before expiration, not just at initiation or expiration.

Key Takeaways About Forward vs Futures Contract Price and Value

• Forward price and futures price can be equal for the same underlying and expiration, but this is not guaranteed.

• A forward contract has zero value at initiation and accumulates value (positive or negative) until expiration, when it is settled in one payment.

• A futures contract also has zero value at initiation, but its value resets to zero after every daily mark to market.

• Daily settlement means futures gains and losses are paid in cash each day through the margin account, not held until expiration.

• Price and value are not the same thing. Price is a contract term. Value is what the position is currently worth.

• A common error is assuming that because forward and futures prices track each other closely, their contract values must also move identically over time.

What You Need to Know for CFA Level I

• Compare forward price and futures price for contracts on the same underlying and expiration.

• Explain how forward contract value changes between initiation and expiration.

• Explain how daily marking to market affects futures contract value.

• Describe how daily settlement changes the timing of cash flows compared to a forward contract.

• Identify the conditions under which forward and futures prices are expected to be similar.

Forward Contract Price and Value

A forward contract locks in a price today for a transaction that happens later. That locked-in price is the forward price, . It does not change after the contract is signed.

Value is different. At initiation, a forward contract has zero value because neither side pays anything upfront and the terms are fair to both parties. As the underlying price moves, the contract becomes worth something to one side and something negative to the other.

At any point before expiration, under the simplified annual-compounding assumptions used here, the value of a long forward position can be written as:

Where:

• is the forward price available at time for a new contract expiring at the same date

• is the original forward price locked in at initiation

• is the annual risk-free rate used for discounting

• is the remaining time until expiration, in years

At expiration, the value of a long forward position simplifies to:

Where is the spot price of the underlying at expiration.

This value is unrealized. No cash changes hands until expiration, even though the contract's value moves every day the underlying price moves.

Futures Contract Price and Value

A futures contract works like a forward in one important way. It also locks in a price, the futures price, for a future transaction. At initiation, a futures contract also has zero value.

The difference is what happens next. Futures exchanges require daily marking to market. At the end of each trading day, the exchange calculates the day's gain or loss based on the change in the futures price. That amount is credited or debited to the trader's margin account in cash.

Because that gain or loss is paid immediately, the futures contract's value resets to zero right after each settlement. The next day starts fresh, with a new reference price and zero value again.

Daily Marking to Market

Marking to market is the process that keeps futures contract value at zero after each settlement. Here is the sequence:

1. The futures price moves during the trading day.

2. At the close, the exchange calculates the change from the prior settlement price.

3. That change is paid in cash into or out of the trader's margin account.

4. The contract's value resets to zero because the gain or loss has already been paid.

This is the single biggest mechanical difference between a forward and a futures contract. A forward contract lets value build up over the life of the contract. A futures contract pays out that value every single day.

Forward vs Futures Price and Value

Forward and futures prices are often close in value for contracts on the same underlying with the same expiration. Under simplified assumptions, particularly when interest rates are constant and not correlated with the underlying asset's price, forward and futures prices are theoretically equal. The reasons they can differ in practice are covered in the next study note.

What Resets in a Futures Contract?

Only the value resets to zero. The futures price itself does not reset. It simply becomes the new reference point for tomorrow's mark-to-market calculation. Candidates sometimes confuse these two ideas. The price keeps moving with the market. The value resets because gains and losses are paid daily, not because the contract price goes back to its original level.

Worked Example

Setup: An investor enters a forward contract and, separately, an investor enters a futures contract. Both contracts are on the same underlying asset, have the same expiration, and both have an initial price of $100. Assume for simplicity that discounting over such a short period is negligible.

Day 1: The price rises to $103

• Forward value to the long position: $103 − $100 = $3 (unrealized, no cash paid)

• Futures: A $3 gain is credited to the margin account today. After settlement, the futures contract's value resets to zero.

Day 2: The price falls to $101

• Forward value to the long position: $101 − $100 = $1 (still unrealized, cumulative since initiation)

• Futures: The price fell $2 from yesterday's $103. A $2 loss is debited from the margin account today. After settlement, the futures value resets to zero again.

Interpretation: Both positions end day 2 with the same net economic result, a $1 gain relative to the original price. But the path differs. The forward holder has not received or paid any cash. The futures holder already received $3 on day 1 and paid $2 on day 2, two separate cash flows that net to the same $1. This is why futures contracts carry less counterparty risk over time. Gains and losses do not sit unpaid until expiration.

Common Exam Traps

Assuming forward and futures value evolve identically

Both contracts can have similar prices, but only the forward contract lets value accumulate. Futures value resets to zero daily.

Ignoring daily settlement in futures

A question may describe a price change and ask for contract value. For futures, remember that any prior gain or loss has already been paid out, so value is often zero or reflects only the most recent day's move.

Confusing futures price with margin account balance

The futures price is a contract term used to measure gains and losses. The margin account balance is the trader's collateral, adjusted daily by those gains and losses. They are related but not the same number.

Treating price and value as synonyms

Price is fixed in the contract terms or quoted in the market. Value is what the position is currently worth to one side. A contract can have an unchanged price and still have positive or negative value.

Practice Questions

An investor enters a 6-month forward contract to buy an asset at a forward price of $50. On the same day, a separate investor enters a futures contract on the same asset, same expiration, same price. Three months later, the price of the underlying has risen. Immediately after that day's futures settlement, which statement is most accurate?

1. The value of the futures contract equals the value of the forward contract.

2. The value of the futures contract resets to zero, while the value of the forward contract reflects the cumulative price change since initiation.

3. The value of the forward contract resets to zero, while the value of the futures contract reflects the cumulative price change since initiation.

FAQs About Forward vs Futures Contract Price and Value