Monday, January 5

Swaps versus futures

· Swaps can be customized and do not require any margin payments, but they do create a lot of credit risk.
· Futures are more liquid and so cheaper. They do require margin but do not create any credit risk.
· Swaps are mainly used by large firms and institutional investors for hedging. Futures are used for both hedging and speculation by individuals as well as institutional investors.

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