A:

Both futures and options trading are considered advanced forms of market trading, and require additional training or the use of a specialist in the field to fully understand their characteristics. When dealing in both types of contracts, the buyers and sellers are both making a short-term (typically less than one year) gamble that the price of the underlying commodity, stock or index will rise or fall.

Futures and options contracts are often confused, but they are similar in that each involves subsequent events. A futures owner has the obligation to buy or sell a specified quantity of an asset at a specified price on a specified date. In contrast, an options holder has the right (but not the obligation) to buy or sell a specified quantity of an asset at a particular price over a specified time period.

To learn more, take a look at our Futures Fundamentals and Options Basics Tutorials.

The question was answered by Steven Merkel.

RELATED FAQS

  1. What assumptions are made when conducting a t-test?

    Learn what a t-test is, and discover the five standard assumptions that are made regarding the validity of sampling and data ...
  2. How do futures contracts roll over?

    Learn about why futures contracts are often rolled over into forward month contracts prior to expiration, and understand ...
  3. How does a forward contract differ from a call option?

    Find out more about forward contracts, call options, the mechanics of these financial instruments and the difference between ...
  4. Why do companies enter into futures contracts?

    Learn how companies use futures contracts for the purposes of hedging their exposure to price fluctuations as well as for ...
RELATED TERMS
  1. Strike Width

    The difference between the strike price of an option and the ...
  2. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
  3. Reference Equity

    The underlying equity that an investor is seeking price movement ...
  4. Boundary Conditions

    The maximum and minimum values used to indicate where the price ...
  5. Best To Deliver

    The security that is delivered by the short position holder in ...
  6. Delta-Gamma Hedging

    An options hedging strategy that combines a delta hedge and a ...

You May Also Like

Related Articles
  1. Investing Basics

    How To Create Capital Protected Investment ...

  2. Chart Advisor

    ChartAdvisor for July 30 2015

  3. Trading Strategies

    Microsoft's Game of Catch-Up With The ...

  4. Economics

    What to Expect from Russia's Oil-Dependent ...

  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares DB US Dollar

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!