3. Futures Terminology

The Difference Between Futures and Options

Futures and options are both derivatives contracts that are based on the performance of an underlying asset. While they share many similarities, they also feature key differences that makes their use ideal for different situations.

The primary difference is that futures require the contract to be settled, whereas options only give the right but not obligation for settlement to the owner.

The main secondary difference is that options are bought with an unleveraged premium, though the seller of an option can also do so on margin, similar to a futures contract.

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