The risk of default is larger with futures contracts than with forward contracts largely because the value of the futures contract is marked-to-market daily, resulting in a higher chance that one of the individuals will be unable to make the required deposit.

Risk Of Default

The possibility or likelihood that a borrower will not be able to meet debt obligations, leading to financial losses for the lender.

Futures Contracts

Financial contracts obligating the buyer to purchase an asset (like a commodity or financial instrument) and the seller to sell the asset at a predetermined future date and price.

Forward Contracts

Financial derivatives that obligate the buyer to purchase and the seller to sell a specific asset at a predetermined future date and price.