| The words "options" and "futures" are used | | | | An investor can sign into a futures contract without |
| reciprocally in trading. These are actually two opposite | | | | full payment upfront, whereas the investor must pay |
| items. Transposing them while transacting trades can | | | | a premium to the contract holder before taking hold |
| have devastating implications for an investor. | | | | of an options contract. This option premium is |
| There are differentiating features to options and | | | | payment in consideration for the investor's right not |
| features contracts. This article will detail those | | | | to be obligated to purchase underlying commodities. |
| dissimilarities to assist the investor in avoiding the | | | | This is of importance when there have been |
| wrong terminology. Hopefully, the information will help | | | | unfavorable price changes. |
| prevent mistakes and increase profitability. | | | | Trades of the size of underlying commodities is |
| Options Contract | | | | another major disparity between options and futures |
| An options contract is binding for a specified period | | | | contracts. Futures usually have larger sizes than |
| of time. An option provides the investor with the | | | | options. Because futures have larger sizes, it is riskier |
| right to purchase or sell a certain number of stocks, | | | | for an investor to trade as he exposes himself to a |
| currencies values or commodities. The investor is not | | | | far greater loss. |
| obligated to exercise the rights obtained through the | | | | The final deviation between the two agreements is |
| contract. The investor is restricted to buying and | | | | realization of gains. Gains in options contracts are |
| selling the commodities at a fixed price. | | | | realized by one of three methods. The investor can |
| Futures Contract | | | | exercise his option, buy a completely different option |
| A futures contract requires that the rights obtained | | | | or collect the difference between the price for the |
| by the investor be exercised. Delivery of the stock, | | | | asset and strike price on the expiration date. Holders |
| currency or commodity must be made. The delivery | | | | of future contracts are only able to realize profits by |
| of the trade is made by a fixed price and must be | | | | an opposition position or at the finish of each trading |
| done on or before the expiration date of the | | | | day through the instant change in the value of |
| contract. | | | | positions. |
| All conditions must be exercised in a futures contract | | | | Learning the specifics of options contracts and |
| wherein, in an options contract, the investor has the | | | | futures contracts, and understanding how each |
| capacity to decide whether to exercise the | | | | operates, will assist the investor in avoiding making |
| conditions. | | | | mistakes that can have profound effects. Always |
| Options and Futures Differences | | | | conduct research prior to trading. Know the rights |
| Besides the basic differences between options | | | | and obligations of the particular contract you are |
| contract and futures contracts regarding rights and | | | | committing to, the amount of commissions payable, |
| obligations, there are several other distinctions | | | | the size of underlying commodities you are exposing |
| between the two. These include commissions, | | | | yourself to and how realization of gains are |
| amount of underlying stock or commodities and the | | | | permitted. |
| manner in which gains are realized. | | | | |