December 10, By Surbhi S Leave a Comment. In this context, futures and options are often misconstrued, by many people. Futures may be understood as the legally binding contract to trade the underlying financial asset of standardized quality and quantity, at an agreed price, at a future specified date. Conversely, options contract is described as a choice in the hands of the investor, i. Take a glance at the article provided to your, to have a clear understanding of the difference between futures and options.

Basis for Comparison Futures Options Meaning Futures contract is a binding agreement, for buying and selling of a financial instrument at a predetermined price at a future specified date.

Options are the contract in which the investor gets the right to buy or sell the financial instrument at a set price, on or before a certain date, however the investor is not obligated to do so.

Difference between options and futures - Option Trading FAQ

Obligation of buyer Yes, to execute the contract. No, there is no obligation. Execution of contract On the agreed date.

Contract for difference - Wikipedia

Anytime before the expiry of the agreed date. Risk High Limited Advance payment No advance payment Paid in the form of premiums. Future is defined as a contract, between two parties, buyer and seller where both the parties promise to each other of buying or selling of the financial asset at an agreed date in the future and at a set price.

The futures contract is a standardized and transferable contract that revolves around, its four key elements, i.

In such contracts the buyer expects the asset price to rise while the seller expects it to fall. The predetermined price on which the trading is concluded is known as the strike price. The option can be purchased by paying an upfront cost, which is non-refundable in nature, known as premium. The option to buy the underlying asset is call option while the option to sell the asset is put option.

Futures and Options both are exchange traded derivative contracts that are traded on stock exchanges like Bombay Stock Exchange BSE or National Stock Exchange NSE which are subject to daily settlement. The underlying asset covered by these contracts is the financial products such as commodities, currencies, bonds, stocks and so on. Moreover, both the contracts require a margin account. So, after the detailed discussion on the two investment topics, it can be said that there is nothing to be confused between the two.

As the name suggests options come with an option choice while futures does not have any options but their performance and execution are certain. Your email address will not be published.

Difference Between Futures and Options (with Comparison Chart) - Key Differences

Business Finance Banking Education General Law Science IT. Key Differences Between Futures and Options The significant differences between future and options are mentioned below: The contract in which the investor gets the right to buy or sell the financial instrument at a set price, on or before a certain date, however, the investor is not obligated to do so, is known as Options Contract.

Futures contract puts an obligation on the buyer to honour the contract on the stated date, so he is locked into the contract. Conversely, in the options contract, there is an option, not the obligation of buying or selling the security. In futures, the performance of the contract is done only at the future specified date, but in the case of options, the performance of the contract can be done at any time before the expiry of the agreed date.

Futures are riskier than the options. Apart from the commission paid, futures do not require advance payment, but options require the payment of premium. Related Differences Difference Between Options and Warrants Difference Between Forward and Futures Contract Difference Between Call and Put Option Difference Between Mutual Fund and ETF Difference Between ETF and Index Fund.

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Futures contract is a binding agreement, for buying and selling of a financial instrument at a predetermined price at a future specified date.