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Stock Market | November 28
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.

Definition

· Future 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.

· Option - 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.

Degree of Risk

· FutureIn the case of futures, there is a higher degree of risk as the parties are under obligation to execute their part of the contract at the pre-determined price, even in the case of losses.

· Option - In the case of options, there is a lower degree of risk as compared to futures as the parties are under no obligation and the level of risk is restricted to the premium amount.

Scope of Profit

· FutureThere is an unlimited scope of profit in futures and the potential of losses is also higher.

· Option - Options also provide an unlimited scope of profit but restrict the extent of losses.

Premium

· FutureYou don’t have to pay any advance amount in the case of futures except a commission.

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

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Important Message The information contained in this file is provided for informational purposes only, and should not be construed as legal advice on any matter. The content and interpretation of the law addressed herein is subject to revision. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this file to the fullest extent permitted by law. Every effort is made to avoid errors. In spite of that, errors and discrepancies may creep in. It is expressly stated that neither Findoc Investmart Private Limited nor any of the contributors of updates will be responsible for any damage to anybody on the basis of this document. Readers are, therefore, requested to cross check with the original sources e.g. Government publications, Orders, Judgments etc., before taking any action or making any decision. These services are being provided through our group companies Findoc Capital Mart Pvt Ltd and Findoc Finvest Private Limited

Attention Investors
  • 1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
  • 2. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
  • 3. Pay 20% upfront margin of the transaction value to trade in cash market segment.

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