Futures and options can be placed under the derivatives class for financial instruments. The derivatives were in existence for hundreds of years and have grown prominently more famous these days. In spite of accusations, that they are liable for lack of stability in the market due to insufficient transparency in them.
One of the primary benefits of investing in futures and options can be that the risk management is catapulted and in turn liquidity levels will be increased. Values for future and options may depend on an additional asset and this is termed as the underlying. In general, this could be a stock or probably the market index.
The answer will be a derivative which offers an individual the right to sell or buy the underlying investment. There are two types of options, the put option and the call option. Put options will offer an investor the right to buy the investment, whereas the call option will be vested along with the right to buy this underlying asset.
A mutual agreement is also considered which is called the option contract, which manifests the price for selling and buying the underlying asset. This option contract has the expiration date when the agreement will expire. There is an option of exercising the European and American styles. In the American style, an option is exercised prior to the expiry of the agreement and in the European style options could be exercised throughout the expiration period.
Futures are more risky than other options as it carries a responsibility to buy.
Buying and selling in futures can be exercised in multiple ways. In delivery option the asset is delivered physically. Cash settlement is made by paying the difference of the spot price and futures based on cash terms.
The futures trading guide can be helpful to anyone for understanding the trading rules, as in futures trading it is possible to generate a profit based on the speculation of price movements.