Difference between option and future trading ?

Derivatives are financial instruments which derive their value from underlying assets such as equity shares, commodities , currencies , and interest rates.

Futures and options are the two most commonly traded derivatives. Market volatility also plays a significant role in the trading of futures and options.It is imperative to understand the difference between options and futures to enable a better understanding of the derivatives. Here we mention below the major differences.

·- A binding agreement between two parties to buy or sell an asset at a certain time in the future at a pre-determined price is a future contract .

· -A non-binding contract in which an investor gets the option or right to buy or sell a financial instrument on or before a certain date in the future at a pre-determined price is an option.

· — In the case of options, an investor needs to pay the premium amount before they enter into the contract.

Originally published at https://www.myfindoc.com.