What is the difference between Futures and Options?

In the stock world, futures and options are typical business-speak that one must learn to be a player in the game. Futures is the contract made by two different parties, either purchase or sell a product at a future period in which the prices are predetermined. The meaning of options is the right without the responsibility only to buy the fundamental assets.

The call option stands for the right without obligation to only purchase assets, and the purchaser may refuse the contract before its maturity. The primary difference is evident in the obligation present between buyers and sellers. The size of a stock position must be considered as well as a diverse profit for parties.

Futures and options are the two major kinds of economy derivatives in the financial market. The term futures are summarized to mean the contracts which are made by two distinguished parties to either sell or purchase products at a period in the future where the prices of the products are predetermined. On the contrary, the term “options” is summarized to mean the right to sell and purchase underlining assets without any obligations. Options can be divided into two, which are call options and put options.

The fundamental difference between options and futures lies in the obligation between the buyers and sellers. When engaged in future contracts, the buyer and seller involved agree on an obligation to buy or sell the asset or product on the day of settlement at a definite price. This proposition seems risky for the two parties. Conversely, when engaged in an option contract, the buyer has the right to sell or purchase the underlying asset without any obligation.