What is the difference between futures and options?

Futures and options are both types of derivatives that allow traders to speculate on the price movements of underlying assets without actually owning them. However, there are some key differences between the two:

1. Obligation: A futures contract is an obligation to buy or sell an underlying asset at a specified price and date in the future, whereas an options contract provides the option to buy or sell an underlying asset at a specified price and date, but not the obligation.

2. Price: The price of a futures contract is determined by the market, whereas the price of an options contract is determined by the market as well as the price of the underlying asset.

3. Timeframe: Futures contracts have a fixed expiration date, whereas options contracts can have different expiration dates, ranging from weeks to years.

4. Flexibility: Options provide more flexibility than futures, as traders can choose to exercise the option or not, depending on the market conditions.

Overall, futures are more suitable for traders looking for a straightforward way to speculate on the price movements of an underlying asset, while options provide more flexibility and are more suitable for traders who want to implement more complex trading strategies.