Futures vs. Options Trading Explained

Like any other trading, futures and options trading are not free from risks of lost investments and care should be taken with the capital to avoid inconvenience. Trading options like binary options bring the risks down, but you can’t take these options lightly. Not only do you stand to make quite a lot but bad luck can also cost you. Now there are a few things that you might try in order to curb this situation. If you make moves and counter moves, then you will find it easy to play in this arena.

Options Trading

What I mean about the negative side of these investments is that loss which might occur if you try to sell an option without setting up an opposite position. For example, if you are in the market to sell a 800 put forex option but the market value has descended to 700 then you will lose the difference minus the premium you get by selling. These are some unreliable and unpredictable grounds and you should tread carefully to minimize your losses. Always remember to make a sound strategy to remain on the safe side.

Now let us take a look at some of the salient features of both, futures and options trading and how do futures and options trading differ from each other.

Options enables you to put up a margin of your choice. Basically what you are paying for an option is known as a premium which is more or less a fixed value. This value can be subjected to several fluctuations before you reach the expiration date. You must be careful about the time slot allotted to you. If you fail to act within this interval the amount you invested will be lost and paid to the seller as profit.

The good thing about futures contract is that it ensures you do not lose the premium over time as is the case with options. However the margin makes you liable for the whole contractual amount. Therefore it is strongly advised that you put some thought into this and open up an offsetting position so that you can save yourself from the negative trend in the market.

People are more attracted to to options as the potential losses are limited. This is because they depend on the amount of premium you paid. Futures: trade is riskier than its contemporary simply because of the fact that it makes you liable for more than just the margin you paid for the trade to happen. Buying or selling of future contracts makes no difference.

This time frame also holds a considerable distinction. In the case of a futures contract, you must make the delivery almost one month before you reach the underlying futures date. It should be noted that this is only true for the physical commodities while the indices allow you to have a common expiration and delivery date.

By now I assume that you will have a clearer picture of the differences between futures and options trading and of the technical terminologies associated with them. The actual trading mechanism is a far complex topic. You should take it from here and advance your research to get a better idea about the potential prospects.

Gary Beal