What is the difference between a futures contract and an options contract?
A futures contract is binding on both buyer and seller as opposed to options, where the buyer has the right but is not obligated to take delivery. In futures, if the market goes against you, you have to keep adding money to your margin or get out of your trade at a loss. In order to exit the commitment before the futures contract’s delivery date, the holder of a futures position has to offset his/her position by either selling a long position or buying back a short position. This would close out the futures position and its contract obligations. Like options, there are two main reasons why investors use futures: to speculate and to hedge (reduce risk). Keep in mind that the main difference between futures and options is that an option grants the trader the right, not the obligation to fulfill the contract, whereas both traders of a futures contract must fulfill contract by the delivery date.
