What is the difference between Options and Futures ?

Options and Futures can be considered derivatives. Both are contracts and derive from underlying instruments such as Stocks, Currency, and Commodities.

 

A Future is a contract that allows you to purchase or sell an underlying asset at a specified price and time. A Future contract must be honored by the buyer. An Option, on the other hand is a contract that allows the holder to purchase or sell the asset at a predetermined time and price. An Options contract buyer may or not be honored. There are other differences between Options and Futures.

 

Futures are binding on both buyer and seller. Options only bind the seller to honor the contract once the Option has been exercised.

Futures have a higher margin than Options.

Futures can lose unlimited amounts, while Options have a limited loss potential.