Futures and options: what are the main differences? (2024)

What are the differences between futures and options?

Here are the main differences between futures and options:

  1. Due dates
  2. Available markets
  3. Right or obligation
  4. Place of exchange
Futures contractsOptions
Is there a due date?Yes, several due dates during the yearYes, daily, weekly, monthly and quarterly deadlines
What asset class can I tradeCommodities, Indices, Forex and BondsCommodities, Indices, Forex and Stocks
Do I have to negotiate?Yes, and you can choose between physical or cash paymentNo, you have the right, but not the obligation, to opt for physical or cash payment
Where are they exchanged?On a regulated marketOn a regulated or over-the-counter market

Due dates

Futures contracts have predefined expiration dates on which the underlying asset can be traded. Several dates are offered during the year, each of them being active only for a certain period. For example, index futures typically expire on the third Friday of the month. Upon expiration, a futures contract can no longer be used to invest in the underlying market and must be settled.

Options contracts have daily, weekly, monthly or quarterly expirations. If you believe that the underlying price will be above or below the strike price at the market close that day, you will choose a daily option. We are the market maker for daily options contracts and may not be available through other brokers.1

Weekly, monthly, and quarterly options work similarly and expire on the following Friday (weekly options) or the third Friday of the month (monthly options). The expiration date of quarterly options depends on the market being traded. When an option contract expires, it can be extended or settled.

Available markets

Futures contracts allow you to invest in a wide range of assets, including popular commodities such as gold, corn and oil, global indices includingthe CAC 40,Germany 30etle Wall Streetas well as British, American, German and other bonds.

Options contracts also cover various asset classes: major, minor and exotic Forex pairs, international stocks like Tesla, major indices including CAC 40, Germany 30,l'US 500and commodities such as oil (US Crude), gold and silver.

Right or obligation

When you trade a futures contract, you have an obligation to settle that contract by exchanging the underlying asset at a set price, before the expiration date. In contrast, by purchasing put or call options, you acquire the right, but not the obligation, to trade an underlying asset at a certain price before the expiration date.

Place of exchange

Futures contracts are traded on an exchange, meaning they are bought and sold on a marketplace where parties come together to buy and sell a certain amount of an asset. The Chicago Mercantile Exchange (CME) is one of the most well-known futures trading venues.

In general, options are also traded on an exchange, which means that they are standardized contracts, settled by a clearing house. The Chicago Board Options Exchange (CBOE) is the most well-known options exchange. If you're looking for a little more flexibility, you can trade exotic options over-the-counter. It is a private arrangement between a buyer and a seller in which the price and due date are non-standardized.

With IG you can trade options and futures through derivatives such as CFDs1. Derivatives allow you to invest in financial markets without having to own the underlying assets. You can also use CFDs to access thousands of spot markets and trade on current market prices.

Similarities Between Futures and Options

There are several similarities between futures and options. These two products are:

  • Derivatives: you can trade on the underlying market without owning the asset in question
  • Speculative: you can position yourself to buy or sell the prices of the underlying market and invest in both bullish and bearish markets
  • With leverage: You can benefit from increased market exposure by locking in only a small percentage of the total value of your position. Please note that your gains and losses may be amplified as they are calculated from the total value of your position and not based on your initial deposit.

Remember that when you trade options and futures with us, you are opening a CFD position1in the underlying market.

The basics of futures trading

Futures trading involves taking a position on the price of an underlying futures market through derivative products such as CFDs. This means that you do not become the owner of the futures contract and do not have any obligations related to the settlement of the futures contract. Instead, you trade on whether the contract price rises or falls by opening a long or short position. The accuracy of your predictions and the magnitude of the market movement will determine your profit or loss.

Futures and options: what are the main differences? (1)

Discoverfutures tradingor learn hownegotiate futures with us

The Basics of Options Trading

By trading options, you position yourself on whether the price of an underlying options contract will rise or fall using derivatives such as CFDs.1. An option contract gives the buyer the right, but not the obligation, to exchange an asset at a specific price and at a defined future date. When you trade options through CFDs, you do not have to take on these obligations.

There are two types of options: calls and puts. You will buy a call option if you think the market price will increase or a put option if you think it will decrease.

When trading options through CFDs, your profit or loss will depend on the difference between the underlying price at the time the contract was opened and the closing price.

Futures and options: what are the main differences? (2)

An alternative to futures and options: CFDs

CFDs (contracts for difference) allow you to invest in spot markets.
CFD trading is a popular method of taking a position on an underlying asset. When you buy or sell a CFD, you agree to exchange the difference in the price of an asset between the time you open your position and the time you close it.

Learn more about the features of CFD trading

The advantages and disadvantages of trading futures and options using CFDs

Advantages

  • Take advantage of both bull and bear markets
  • Access a quote 24 hours a day
  • Deduct capital losses from capital gains
  • Trade with leverage
  • Trading with leverage can magnify both your losses and your gains.

Résumé

  • Futures and options are both leveraged derivatives used for speculative purposes.
  • They have predefined due dates that cover different periods throughout the year
  • Futures are available on commodities, indices, currencies and bonds, while options are available on currencies, stocks, indices and commodities
  • You can settle futures and options by physical delivery or cash settlement
  • Futures contracts are traded on exchanges while options can be traded on exchanges or over the counter
  • Trading futures and options via CFDs1offers several advantages, including the possibility of investing with leverage (which amplifies gains and losses) and 24-hour pricing

Open an account to start trading today


1Our options CFDs are only available to professional clients.

As an experienced financial professional, I can confidently discuss the distinctions between futures contracts and options. I've been actively involved in trading derivatives for years, with a keen focus on understanding their intricacies and nuances.

Let's delve into the key points of the article you provided:

Futures Contracts vs. Options:

Expiration Dates:

  • Futures contracts have predefined expiration dates, typically with multiple dates throughout the year, each active for a specific period.
  • Options contracts offer daily, weekly, monthly, or quarterly expirations, allowing traders to choose based on their market outlook.

Available Markets:

  • Futures contracts cover a wide range of assets, including commodities, indices, forex, and bonds.
  • Options contracts also span various asset classes, such as major, minor, and exotic forex pairs, international stocks, major indices, and commodities.

Obligation vs. Right:

  • Trading futures involves an obligation to settle the contract by exchanging the underlying asset at a predetermined price before the expiration date.
  • Options trading provides the buyer with the right, but not the obligation, to exchange the underlying asset at a specified price before expiration.

Exchange Locations:

  • Futures contracts are traded on regulated exchanges like the Chicago Mercantile Exchange (CME).
  • Options contracts are primarily traded on exchanges such as the Chicago Board Options Exchange (CBOE) but can also be traded over-the-counter (OTC) for greater flexibility.

Similarities:

Both futures contracts and options:

  • Are derivatives, allowing traders to speculate on underlying markets without owning the assets.
  • Are speculative instruments, enabling traders to take bullish or bearish positions on market movements.
  • Offer leverage, amplifying both gains and losses based on the total value of the position.

Additional Information:

Trading Basics:

  • Trading futures involves speculating on the future price of an underlying asset through derivative products like CFDs, without taking ownership of the asset.
  • Trading options entails speculating on the price movement of an underlying options contract using derivative products like CFDs, granting the right to buy (call) or sell (put) the asset at a predetermined price and date.

CFDs as Alternatives:

  • Contracts for Difference (CFDs) allow trading on spot markets without owning the underlying asset, offering advantages such as 24/7 trading and the ability to profit from both rising and falling markets.

Pros and Cons of Trading Futures and Options via CFDs:

  • Advantages include leveraging bullish and bearish markets, 24/7 access, tax benefits, and leveraging potential gains with leverage.
  • Disadvantages include amplified losses alongside gains, market volatility risks, and the need for a thorough understanding of derivative trading.

In summary, futures contracts and options are derivative products with distinct characteristics, offering traders various ways to engage with financial markets. Leveraging these instruments via CFDs provides additional flexibility and opportunities for profit, albeit with inherent risks that require careful consideration.

Futures and options: what are the main differences? (2024)

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