Using single stock forwards has become a popular strategy among a large number of market participants. The difference between purchasing stock forwards and underlying shares lies in the payment for shares, with stock forwards this occurs only at an agreed date in the future.
Purchasing stock futures is therefore an alternative to purchasing underlying shares. Stock forwards are a capital efficient way to buy shares at a predetermined price in the future. Selling stock forwards is an efficient way to protect an existing share portfolio or indeed a good way to speculate in a market downturn. With stock forwards it is possible to sell short without owning the underlying share.
The main difference between futures and forwards lies in the fact that futures contracts are marked to market via daily settlement and the futures positions can be set-off (closed) during the contract term. Futures also use a simplified margin calculation and settlement on T+1.
