Futures vs Options: Understanding the differences and choosing the right derivative instrument
Online trading applications have helped new-age investors and traders participate in Futures and Options trading as per their requirements.
Few novice investors and traders are curious and willing to explore this segment without understanding the risk involved in it.
This blog will try to explain the difference between the Future and Options segments that may help investors and traders to choose the right derivative instrument.
Before diving into the comparison, Let's get a basic understanding of both the financial terms.
Futures are financial contracts obligating buyers to purchase or sellers to sell assets like equity, commodities, and currencies at a predetermined future date and price.
Futures acts as a risk management tool; they allow investors to hedge against price fluctuations. Traders speculate on the future value of commodities, currencies, or equities, facilitating price discovery and market liquidity.
These standardised agreements are traded on organised exchanges, providing a transparent platform for participants in the global financial markets.
Options are financial instruments that give the buyer the right, but not the obligation, to buy the call option of an underlying asset at a predetermined price within a specified timeframe.
This flexibility provides investors’ leverage in managing risk or capitalising on market movements.
Types of Option Contracts
Call options and put options. Both serve a different purpose and provide unique opportunities for traders and investors.
● Call
