Difference between Option and Future Trading

Option trading is where there is no responsibility of buyer to buy or sell a definite asset at a definite price at any time during the trading. If the buyer has the responsibility to buy a specific asset and the seller to sell that asset at a definite future date then it is termed as “Futures Contract”. Participation of investors in futures trade is possible with no upfront cost and premium payment is required for purchasing trade an options position.

The volume of underlying position is another key dissimilarity between options and futures. With respect to futures trade, the underlying position is much bigger and more risky for the inexperienced trader. Increase that is obtained by parties with reference to these two financial tools is the last major difference. The recognition of increase on an option can be done in following three ways:

a)      Work out the Option when it is profound in the money.

b)      Setting opposite position by going to the market.

c)       Waiting until expiry, collecting the difference between strike price and asset price.

Considering future trading, the futures accounts of traders at the end of each trading day are credited with the modifications in value of the stage. Also the futures trade holder can take the reverse position and recognize gains by going to the marketplace.

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