What is the difference between an options contract and a futures contract?

By Steven Merkel AAA
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.

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