Futures trading is when both the buyer and seller of the stock have a mutual agreement of trading the stock at a fixed price and time in the future. On the other hand, under anoptions trading contract, the buyer can sell the asset at a decided price at the end of a specific duration or even before that. However, selling off the asset in the specified duration is not a mandatory requirement.
Benefits of Trading in Futures and Options
Futures’ trading is a more frequent form of trading that is used, due to which their liquidity is high. As a result, there are no major fluctuations in the prices, and upon maturity the contract isn’t drastically affected. Even the commission about in a futures trade is quite low in terms of the value of the contract. With futures trading, you also get to hedge a variety of risks.
Under options trading, the most lucrative benefit is that the individual is not obligated to sell the
asset at the end of the predetermined duration. Moreover, since options’ trading provides this
added advantage, for an investor, they are more cost efficient. As compared to futures trading, the
risk involved here is quite less. They do not show a massive impact due to gap openings which makes
the risk involved in trading in options lesser.
Which is the better trading contract for you?
Futures and options trading both have their own set of advantages. But futures trading must be
preferred over options trading due to the higher level of transparency and upfront transaction costs
communicated. It is also a quick trading opportunity, with high liquidity and a very clear pricing
strategy, which makes is an easier option for beginners in investing. So, if you are looking at starting
off small and avoiding risks, begin with futures trading and become a confident investor.