Future vs. Swap — What's the Difference?
Edited by Tayyaba Rehman — By Fiza Rafique — Published on November 2, 2023
Future is a standardized contract to buy or sell a specified asset at a set price on a future date; Swap is an agreement to exchange cash flows or assets between two parties.
Difference Between Future and Swap
Table of Contents
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Key Differences
A Future is a financial contract obligating the buyer to purchase, and the seller to sell, a predetermined quantity of an asset at a preset price on a specified future date. A Swap, on the other hand, is a derivative wherein two parties exchange cash flows or other financial instruments. Both instruments are commonly used in financial markets, but for distinct purposes.
The Future contract is standardized and traded on exchanges, making them more transparent and liquid. The Swap is typically customized and can be tailor-made to suit the requirements of both parties. Thus, while Futures are traded on public platforms, Swaps are predominantly OTC (over-the-counter) products.
In terms of risk, a Future contract carries daily mark-to-market risk, meaning the contract is adjusted daily to reflect its current market value. Conversely, a Swap doesn't have this daily adjustment; the cash flows or assets are simply exchanged at predetermined times.
In essence, the Future is a commitment to act on a future date, offering less flexibility once entered. A Swap allows for flexibility in the terms of the contract, offering adaptability in its duration, size, and conditions.
Lastly, Futures usually have a physical or cash settlement, meaning the underlying asset is delivered or its cash equivalent is paid. In a Swap, no actual asset is traded; instead, the cash flows derived from that asset are exchanged.
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Comparison Chart
Type of Contract
Standardized, traded on exchanges.
Customized, typically OTC.
Market
Public trading platforms.
Private agreements between parties.
Risk
Daily mark-to-market adjustments.
No daily adjustments, predetermined exchanges.
Flexibility
Less flexible once entered.
Tailored to parties' requirements.
Settlement
Usually physical or cash settled.
Cash flows or asset values exchanged, no physical delivery of asset.
Compare with Definitions
Future
A time yet to come.
We hope for a brighter future.
Swap
An event where items are exchanged, often informally.
We're attending a book swap this weekend.
Future
A financial contract obligating a transaction at a later date.
He bought a future in gold.
Swap
To give something and receive something else in return.
I decided to swap my apple for her orange.
Future
Relating to or indicating time to come.
The future generations will thank us.
Swap
A financial derivative in which cash flows are exchanged.
The banks entered into an interest rate swap.
Future
Expected or scheduled to arrive.
The future president will address the nation.
Swap
To trade one thing for another.
Future
The indefinite time yet to come
Will try to do better in the future.
Swap
To exchange (one thing) for another.
Future
Something that will happen in time to come
"The future comes apace" (Shakespeare).
Swap
An exchange of one thing for another.
Future
A prospective or expected condition, especially one considered with regard to growth, advancement, or development
A business with no future.
Swap
A contract in which two parties agree to exchange periodic interest payments, especially when one payment is at a fixed rate and the other varies according to the performance of a reference rate, such as the prime rate.
Future
Often futures A financial instrument that obligates the holder to buy or sell an asset at a set price on a specified date in the future
A market for copper futures.
Swap
(transitive) To exchange or give (something) in an exchange (for something else).
Future
The form of a verb used in speaking of action that has not yet occurred or of states not yet in existence.
Swap
To hit, to strike.
Future
A verb form in the future tense.
Swap
To beat the air, or ply the wings, with a sweeping motion or noise; to flap.
Future
That is to be or to come; of or existing in later time.
Swap
To descend or fall; to rush hastily or violently.
Future
The time ahead; those moments yet to be experienced.
Swap
An exchange of two comparable things.
Future
Something that will happen in moments yet to come.
Swap
(finance) A financial derivative in which two parties agree to exchange one stream of cashflow against another stream.
Future
Goodness in what is yet to come. Something to look forward to.
There is no future in dwelling on the past.
Swap
Space available in a swap file for use as auxiliary memory.
How much swap do you need?
Future
The likely prospects for or fate of someone or something in time to come.
Swap
(Cantab slang) A social meal at a restaurant between two university societies, usually involving drinking and banter; commonly associated with fining and pennying; equivalent to a crewdate at Oxford University.
Future
(grammar) Verb tense used to talk about events that will happen in the future; future tense.
Swap
A blow; a stroke.
Future
(finance) futures
Swap
To strike; - with off.
Future
An object that retrieves the value of a promise.
Swap
To exchange (usually two things of the same kind); to swop.
Future
(sports) A minor-league prospect.
Swap
To fall or descend; to rush hastily or violently.
All suddenly she swapt adown to ground.
Future
Having to do with or occurring in the future.
Future generations will either laugh or cry at our stupidity.
Swap
To beat the air, or ply the wings, with a sweeping motion or noise; to flap.
Future
That is to be or come hereafter; that will exist at any time after the present; as, the next moment is future, to the present.
Swap
A blow; a stroke.
Future
Time to come; time subsequent to the present (as, the future shall be as the present); collectively, events that are to happen in time to come.
Swap
An exchange; a barter.
Future
The possibilities of the future; - used especially of prospective success or advancement; as, he had great future before him.
Swap
Hastily.
Future
A future tense.
Swap
An equal exchange;
We had no money so we had to live by barter
Future
The time yet to come
Swap
Exchange or give (something) in exchange for
Future
A verb tense that expresses actions or states in the future
Swap
Move (a piece of a program) into memory, in computer science
Future
Bulk commodities bought or sold at an agreed price for delivery at a specified future date
Swap
To substitute one thing for another.
Can you swap these two tires for me?
Future
Yet to be or coming;
Some future historian will evaluate him
The present leader
Articles for present use
The present topic
The present system
Present observations
Future
Effective in or looking toward the future;
He was preparing for future employment opportunities
Future
Coming at a subsequent time or stage;
The future president entered college at the age of 16
Awaiting future actions on the bill
Later developments
Without ulterior argument
Future
(of elected officers) elected but not yet serving;
Our next president
Future
A verb tense or other formation referring to events or states that have not yet happened;
Future auxiliary
Future
Pertaining to the verb tense that expresses actions yet to happen.
In the sentence I will go, will go is in the future tense.
Common Curiosities
What is a Future in financial terms?
A Future is a standardized contract to buy or sell a specified asset at a set price on a future date.
How is a Swap different from a Future?
A Swap is an agreement to exchange cash flows or assets, while a Future is a commitment to buy or sell an asset in the future.
Do Futures have a daily risk adjustment?
Yes, Futures undergo daily mark-to-market adjustments.
Are Swaps always traded over-the-counter (OTC)?
Mostly, yes. Swaps are typically customized and traded OTC.
Are all Future contracts standardized?
Yes, Futures are standardized contracts with set terms and conditions.
Can you provide a simple example of a Future in a sentence?
Sure, "He invested in a gold future expecting the price to rise."
Can Future contracts be traded on any platform?
Futures are typically traded on public trading platforms or exchanges.
What does it mean to swap something in everyday language?
To swap means to exchange one thing for another.
Do Swaps involve the actual exchange of assets?
No, Swaps usually involve the exchange of cash flows or asset values, not the physical assets.
What does the future tense in grammar refer to?
The future tense expresses actions or events that will happen in the future.
What is the primary purpose of a Swap in finance?
Swaps are used to hedge risks or gain exposure to certain financial instruments without owning the actual asset.
Does the term "future" always relate to finance?
No, "future" can also refer to a time that has not yet happened.
How is a Swap typically settled?
Swaps are settled by exchanging cash flows or the values of the underlying assets, not by physical delivery of assets.
Can Swaps be customized?
Yes, Swaps are generally tailored to the specific needs of the parties involved.
Do Swaps have daily mark-to-market adjustments like Futures?
No, Swaps don't have daily mark-to-market adjustments.
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Written by
Fiza RafiqueFiza Rafique is a skilled content writer at AskDifference.com, where she meticulously refines and enhances written pieces. Drawing from her vast editorial expertise, Fiza ensures clarity, accuracy, and precision in every article. Passionate about language, she continually seeks to elevate the quality of content for readers worldwide.
Edited by
Tayyaba RehmanTayyaba Rehman is a distinguished writer, currently serving as a primary contributor to askdifference.com. As a researcher in semantics and etymology, Tayyaba's passion for the complexity of languages and their distinctions has found a perfect home on the platform. Tayyaba delves into the intricacies of language, distinguishing between commonly confused words and phrases, thereby providing clarity for readers worldwide.
