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Derivatives Decoded | Episode 1: Futures vs Options Explained
Economic Times 1 hr ago·1 Sept 2026, 2:30 am
This explainer breaks down the core difference between futures and options, two essential tools for trading derivatives. A futures contract is a binding agreement to buy or sell an asset at a set price on a specific future date. It carries a mandatory obligation for both parties. In contrast, an option gives the buyer the right, but not the obligation, to execute the trade. The seller of the option must fulfill the contract only if the buyer chooses to exercise that right.
Understanding this distinction is vital for managing risk. Futures are often used for hedging or speculative bets where the trader wants full exposure to price movements. Options provide more flexibility, allowing investors to limit potential losses to the premium paid while retaining the chance for unlimited gains. Retail investors should carefully assess their risk appetite before using these complex instruments.
Key takeaways
- Category: Stocks.
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