Options Vs. Futures: Similarities and Differences

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Just like stocks, you can also trade and invest in Options and Futures, and make profits. Options and Futures are derivatives. Derivatives are financial instruments that get their value from an underlying asset. Options and Futures are normally used for speculation hedging, also and managing risk.

Similarities Between Options and Futures

• As mentioned above, Options and Futures are derivatives. These assets allow investors and traders to buy or sell assets at a predetermined price.
  
• Options and Futures have expiration dates, which mean after they expire the contract is worthless.
  
• Options and Futures have a strike price. Strike price is the price at which the asset is bought or sold.
  
• Options and Futures used for speculation as well as hedging.
  

Differences Between Options and Futures

• Options are Futures both are contract. The basic difference in these two types of contract is while Options provide the right to buy or sell assets, Futures obligates to buy or sell asset. The difference between Options and Futures is the difference in the meaning of the right and Obligations.
  
• Options are not standardized and traded over-the-counter. Futures, on the other hand, are standardized and traded on exchanges.
  
• Options can be exercised at any time. You do not have to wait for expiration date to trade. However, Futures must be settled on the expiration date.
  
• Futures have higher risks compared to Options.