What is the difference between options and futures?

What is the difference between options and futures?

Options and futures are both derivatives, but they have key differences. Options give you the right, but not the obligation, to buy or sell an asset at a predetermined price before a certain date. Futures, on the other hand, are contracts that obligate you to buy or sell an asset at a set price on a specific date.

Can you explain how the risk differs between the two?

Certainly! With options, your risk is limited to the premium you pay for the option. In contrast, futures carry a higher risk because you are obligated to fulfill the contract, which can lead to significant losses if the market moves against you.

Which one is better for beginners?

For beginners, options might be better due to their limited risk. However, it's essential to understand both instruments and their risks before trading.

Are there any strategies specific to options trading?

Yes, there are several strategies like covered calls, protective puts, and straddles that traders use to manage risk and enhance returns.