Both futures and options are called Derivatives because they derive their value from an underlying market. A Futures Contracts creates an obligation to Buy or sell physical goods at a future date. An Options contracts, creates a right but not an obligation to do the same.
Under options contract you can Buy and Sell, Right to Buy or the “CALL” option and Right to Sell or the “PUT” option,depending upon the market movement. This makes Option more complex and advanced derivative to trade in.
To participate in options, one has to pay a premium for the right to the end result.
With futures contract, you pay or receive a small down payment towards the end result. The level of risk in futures is high whereas Options carry limited risk. The most you can lose when you Buy call or put options, is your initial outlay. The execution of the futures contract can only be done on the pre-decided date.
Options contract requires the performance to be done at any time prior to the date of expiry.
These are some fundamental differences that affect the level of risk involved and therefore, how you should use them.
Know more to grow more.
Investment in securities market are subject to market risks, read all the related documents carefully before investing
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