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Forward contracts don't allow users to easily change marketing plans. Futures provide more flexibility. For example, a farmer who sold, or went short, a November soybean futures contract in March, expecting the price to go down, could see a summer drought push the price of soybeans substantially higher. At that point, the farmer could buy back the November contract, eliminating the short position—leaving the farmer long the cash soybean market based on the crop that is in the fields. With a forward contract, the producer is locked into delivering the soybeans to the local elevator at the price established in March.

A forward contract's value isn't "marked to market" until it comes due. Exchanges require that each futures account be marked to market at the end of each trading day. That means that each po­sition in the market is assigned a value based on the day's closing price. A trader holding a losing position may be required to post additional margin or else close out the position. This keeps big losing positions from accumulating and lowers the risk of default. Since forward markets aren't marked to market, the risk that a trading partner could default in a volatile market is higher.

Forward transactions are often more complex than futures transactions. Complex financial transactions can often be executed more easily in the futures market than in the forward market. A bank whose client wants to borrow money in September, and repay in December, would be exposed to interest rate risk if it quoted a fixed rate. To offset the risk in the forward market, the institution would have to make two trades, lending to September and borrowing from December. Futures would allow the bank to execute a single trade, selling 3-month Eurodollar futures for settlement in September.

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If the bank wanted to unwind the position before September, it would simply offset the futures position by buying back a September contract, eliminating the short position.