Difference between
Options and Futures
In options trading one can trade options on
futures contracts as well as on equities
themselves.

http://www.options-tradi...
Having a clear sense of the difference
between options and futures is essential in
this regard.

http://www.options-tradin...
To understand the difference between
options and futures let us start with a couple
of basic definitions.

http://www.opti...
Futures Contracts

http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
Futures are standardized contracts between
two parties to buy or sell a specified asset of
a standardized quantity and qua...
This is done on a futures exchange such as
the COMEX or NYMEX. A buyer is said to
be long and a seller is said to be short...
Buyers expect an asset price to increase
and sellers expect the asset price to fall.

http://www.options-tradingeducation....
Futures contracts are written on stocks,
stock indexes, interest rates, bonds, and
currencies in the Forex market.

http:/...
The futures exchange acts an intermediary
and minimizes the risk of default by either
party.

http://www.options-tradinged...
Thus the exchange requires a margin
account put up by both parties. Because
conditions change daily the price of a futures...
A common way to minimize risk in futures
trading is to purchase options contracts on
futures trades.

http://www.options-t...
Options Contracts

http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
An options contract gives the buyer the right
to buy or sell an underlying asset or
instrument at a specified strike price...
The buyer is under no obligation to do so.

http://www.options-tradingeducation.com/21627/difference-between-optionsand-fu...
The seller is paid a premium in return to
assuming the risk of losing money if the
options trade goes against expectations...
An option which gives the owner the right to
buy is a call and an option which gives the
owner the right to sell is a put....
One buys a call if one expects equities to
rise and a put if one expects them to fall.

http://www.options-tradingeducatio...
As with futures one can exercise an options
contract before expiration providing one is
trading American style options.

h...
If one is trading European style options
contract one must wait until expiration to
execute the contract.

http://www.opti...
However, the value of the contract varies
with the price of the equity and expectations.

http://www.options-tradingeducat...
Thus one can exit an options contract with a
profit and not wait until expiration to do so.

http://www.options-tradingedu...
The Difference
between Options and
Futures
http://www.options-tradingeducation.com/21627/difference-between-optionsand-fut...
A difference between options and futures
has to do with degree of risk.

http://www.options-tradingeducation.com/21627/dif...
One is locked into a futures contract even if
things go badly.

http://www.options-tradingeducation.com/21627/difference-b...
Thus a trader may lose a significant amount
of money with the wrong trade.

http://www.options-tradingeducation.com/21627/...
In the case of options trading the seller of an
options contract assumes potentially
unlimited risk while a buyer limits h...
Hedging risk with options is a common
practice when trading futures in Forex,
commodities, and stocks.

http://www.options...
Difference between Options and Futures
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Difference between Options and Futures

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Difference between Options and Futures

http://www.options-trading-education.com/21627/difference-between-options-and-futures/

In options trading one can trade options on futures contracts as well as on equities themselves. Having a clear sense of the difference between options and futures is essential in this regard. To understand the difference between options and futures let us start with a couple of basic definitions.

Futures Contracts

Futures are standardized contracts between two parties to buy or sell a specified asset of a standardized quantity and quality for an agreed upon price set at the time of making the contract. This is done on a futures exchange such as the COMEX or NYMEX. A buyer is said to be long and a seller is said to be short. Buyers expect an asset price to increase and sellers expect the asset price to fall. Futures contracts are written on stocks, stock indexes, interest rates, bonds, and currencies in the Forex market. The futures exchange acts an intermediary and minimizes the risk of default by either party. Thus the exchange requires a margin account put up by both parties. Because conditions change daily the price of a futures contract changes as well. Futures contract traders often enter and exit trades without remaining in the contract until expiration. A common way to minimize risk in futures trading is to purchase options contracts on futures trades.

Options Contracts

An options contract gives the buyer the right to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date. The buyer is under no obligation to do so. The seller is paid a premium in return to assuming the risk of losing money if the options trade goes against expectations. An option which gives the owner the right to buy is a call and an option which gives the owner the right to sell is a put. One buys a call if one expects equities to rise and a put if one expects them to fall. As with futures one can exercise an options contract before expiration providing one is trading American style options. If one is trading European style options contract one must wait until expiration to execute the contract. However, the value of the contract varies with the price of the equity and expectations. Thus one can exit an options contract with a profit and not wait until expiration to do so.

The Difference between Options and Futures

A difference between options and futures has to do with degree of risk. One is locked into a futures contract even if things go badly. Thus a trader may lose a significant amount of money with the wrong trade. In the case of options trading the seller of an options contract assumes potentially unlimited risk while a buyer limits his risk to the amount paid for the contract premium. Hedging risk with options is a common practice when trading futures in Forex, commodities, and stocks.

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Transcript of "Difference between Options and Futures"

  1. 1. Difference between Options and Futures
  2. 2. In options trading one can trade options on futures contracts as well as on equities themselves. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  3. 3. Having a clear sense of the difference between options and futures is essential in this regard. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  4. 4. To understand the difference between options and futures let us start with a couple of basic definitions. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  5. 5. Futures Contracts http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  6. 6. Futures are standardized contracts between two parties to buy or sell a specified asset of a standardized quantity and quality for an agreed upon price set at the time of making the contract. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  7. 7. This is done on a futures exchange such as the COMEX or NYMEX. A buyer is said to be long and a seller is said to be short. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  8. 8. Buyers expect an asset price to increase and sellers expect the asset price to fall. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  9. 9. Futures contracts are written on stocks, stock indexes, interest rates, bonds, and currencies in the Forex market. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  10. 10. The futures exchange acts an intermediary and minimizes the risk of default by either party. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  11. 11. Thus the exchange requires a margin account put up by both parties. Because conditions change daily the price of a futures contract changes as well. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  12. 12. Futures contract traders often enter and exit trades without remaining in the contract until expiration. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  13. 13. A common way to minimize risk in futures trading is to purchase options contracts on futures trades. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  14. 14. Options Contracts http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  15. 15. An options contract gives the buyer the right to buy or sell an underlying asset or instrument at a specified strike price on or before a specified date. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  16. 16. The buyer is under no obligation to do so. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  17. 17. The seller is paid a premium in return to assuming the risk of losing money if the options trade goes against expectations. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  18. 18. An option which gives the owner the right to buy is a call and an option which gives the owner the right to sell is a put. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  19. 19. One buys a call if one expects equities to rise and a put if one expects them to fall. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  20. 20. As with futures one can exercise an options contract before expiration providing one is trading American style options. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  21. 21. If one is trading European style options contract one must wait until expiration to execute the contract. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  22. 22. However, the value of the contract varies with the price of the equity and expectations. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  23. 23. Thus one can exit an options contract with a profit and not wait until expiration to do so. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  24. 24. The Difference between Options and Futures http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  25. 25. A difference between options and futures has to do with degree of risk. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  26. 26. One is locked into a futures contract even if things go badly. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  27. 27. Thus a trader may lose a significant amount of money with the wrong trade. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  28. 28. In the case of options trading the seller of an options contract assumes potentially unlimited risk while a buyer limits his risk to the amount paid for the contract premium. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/
  29. 29. Hedging risk with options is a common practice when trading futures in Forex, commodities, and stocks. http://www.options-tradingeducation.com/21627/difference-between-optionsand-futures/

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