Forward contract is an obligation for one party to buy and another party to sell, an underlying asset at a specific price at a specific time in the future. It is an over-the-counter contract.
Futures contract is similar to a forward contract but is a standardized contract and is traded on a futures exchange. Since it is an exchange traded derivative instrument, there is a daily settling of gains and losses.
An option is a derivative contract in which the option buyer pays a sum of money to the option seller, and receives the right to either buy or sell an underlying asset at a fixed price at some time in the future. A call is an option that provides the right to buy the underlying. A put is an option that provides the right to sell the underlying.
A swap is an over-the-counter derivative contract in which two parties agree to exchange a series of cash flows. Typically one party will pay variable cash flows that depend on an underlying rate and the other party will pay fixed cash flows.
A credit derivative is a contract that provides a payment to the credit protection buyer if a specified credit event occurs. The most widely used credit derivative is a credit default swap.
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