What is the difference between options and futures?
Options and futures are both derivatives, which means their value is derived from an underlying asset. However, they are used for different purposes and have some key differences.
Options:
Give the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (strike price) on or before a certain date (expiration date).
Options are typically used for hedging or speculating.
The buyer of an option pays a premium to the seller for the right to buy or sell the underlying asset.
Options are available for a wide range of underlying assets, including stocks, bonds, commodities, and currencies.
Futures:
Options are typically used for hedging or speculating.
The buyer of an option pays a premium to the seller for the right to buy or sell the underlying asset.
Options are available for a wide range of underlying assets, including stocks, bonds, commodities, and currencies.
Futures:
Are a legally binding agreement to buy or sell an underlying asset at a predetermined price on a future date.
Futures are typically used for hedging or speculating.
Both the buyer and seller of a future are obligated to buy or sell the underlying asset at the agreed upon price, regardless of the market price at the time the contract expires.
Futures are primarily used in commodity and currency markets.
In summary, an option gives the holder the right to buy or sell an underlying asset at a fixed price on or before a future date, but not the obligation. A future is a legally binding agreement to buy or sell an underlying asset at a fixed price on a future date.
Futures are typically used for hedging or speculating.
Both the buyer and seller of a future are obligated to buy or sell the underlying asset at the agreed upon price, regardless of the market price at the time the contract expires.
Futures are primarily used in commodity and currency markets.
In summary, an option gives the holder the right to buy or sell an underlying asset at a fixed price on or before a future date, but not the obligation. A future is a legally binding agreement to buy or sell an underlying asset at a fixed price on a future date.
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