Difference Between Options and Futures - Samco (2024)

FAQs

Difference Between Options and Futures - Samco? ›

Options have a premium that is paid by the buyer and received by the seller. Futures have no upfront payment but require a margin deposit by both parties. Options have limited risk for buyers and unlimited risk for sellers. Futures have an unlimited risk for both buyers and sellers.

Futures offer higher potential profits but also higher risk, while options provide limited profit potential with capped losses. However, Options require lower upfront capital compared to futures.

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Options are generally considered safer than futures because the potential loss in options trading is limited to the premium paid, whereas futures carry higher risk due to potential unlimited losses resulting from leverage and market movements.

Options and futures can both be used to hedge downside risk. Options may be cheaper in that you only pay the premium, and losses are limited to that if a downside drop doesn't occur.

Leverage: Futures contracts generally involve a larger amount of the underlying asset compared to individual stock options. This can provide greater leverage, allowing for the potential of higher returns (although this also means increased risk).

The key difference between the two is that futures require the contract holder to buy the underlying asset on a specific date in the future, while options -- as the name implies -- give the contract holder the option of whether to execute the contract.

CashPlus is one such new-gen MTF that Samco Securities offers through its trading app. It allows you to get up to 4X leverage for purchasing shares on NSE and BSE. Samco will provide up to ₹3 lakh for a margin amount of ₹1 lakh. This facility is available for more than 1,000 stocks.

in the Samco trading app. Once you do this, you can enter the details required, like the option you want to trade in, its expiry date and your market outlook (which may be bullish, bearish, neutral or volatile). With these details, Options B.R.O.

Which is more profitable, futures or options? ›

Futures have several advantages over options in the sense that they are often easier to understand and value, have greater margin use, and are often more liquid. Still, futures are themselves more complex than the underlying assets that they track. Be sure to understand all risks involved before trading futures.

An essential difference between futures and options is managing the margin value. Based on the underlying stock price movement, either party might have to add more money to the trading account to maintain daily trading obligations, which increases the total cost of futures for small investors.

Future contracts have numerous advantages and disadvantages. The most prevalent benefits include simple pricing, high liquidity, and risk hedging. The primary disadvantages are having no influence over future events, price swings, and the possibility of asset price declines as the expiration date approaches.

Overview: Swing trading is an excellent starting point for beginners. It strikes a balance between the fast-paced day trading and long-term investing.

That said, generally speaking, futures trading is often considered riskier than stock trading because of the high leverage and volatility involved that can expose traders to significant price moves.

For example, if you buy a futures contract for 100 barrels of oil at ₹50 per barrel, you are obligated to buy the oil for ₹50 per barrel even if the market price of oil has risen to ₹60 per barrel by the expiration date. The opposite is true if you sell a futures contract.

A futures contract only allows trading of the underlying asset on the date specified in the contract, whereas options can be exercised at any time before they expire. Both options and futures have a daily settlement, and trading options or futures require a margin account with a broker.

While both have the same degree of leverage and capital committed, volatility makes futures the riskier of the two. You must understand that leverage can be akin to a “double-edged sword”. You can gain money quickly, and lose it in the blink of an eye.

Suppose a trader chooses a futures contract on the S&P 500. The index is 5,000 points, and the futures contract is for delivery in three months. Each contract is $50 times the index level, so one is worth $250k (5,000 points × $50). Without leverage, traders would need $250k.