What is the difference between futures and options?

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.

What are options based on?

Options are based on the value of an underlying stock, index future, or commodity. An options contract gives an investor the right to buy or sell the underlying instrument at a specific price while the contract is in effect. Investors may choose not to exercise their options. Options are financial derivatives.

Why are options more illiquid than futures?

Futures (esp. commodities, currencies and indexes) are traded in huge numbers every day so investors can get in and out more faster and cheaper. Options can be more illiquid, especially if the underlying asset is far away from the option’s strike price or the option expires far into the future.

What is the difference between a future and a contract?

Futures, on the other hand, require that the agreed-upon transaction takes place when the contract expires. What are futures? Futures contracts are arrangements in which a buyer agrees to purchase an underlying asset, most often a commodity, for a set price on a specified future date.