Should You Prefer To Use Futures Contracts Or Options Trading Products?

This is one of the most common topics in the trading industry. Many novices and experienced traders hang out here. Obviously, when trading commodities, choose the most appropriate option or futures contract.

Therefore, in today’s article, we will briefly discuss the characteristics, obligations, execution process, main risks, profit and loss degree, etc. of these two transaction types.

I hope it can help traders choose the right transaction type.

Optional transaction:

The option is a contract between the parties. The purchaser may purchase or sell financial assets/securities/commodities at a predetermined price on a predetermined date.

In an option contract, if the investor decides not to buy or sell the asset, there is no need to buy or sell it. In order to obtain the decision, the buyer must pay a premium to the option contract. We can use options for contracts in many areas and markets. For example, buying real estate, a business transaction, or a car.

We suggest you browse online trading training materials to better understand the details.

The following features of option agreements guide traders to trade options:

1. Minimize and limit option risk

2. If the traders decide not to withdraw from the option contract, they can withdraw from the option contract within the validity period.

3. The high-end is only a part of the target assets, so the cost is lower.

4. One can make profits not only when commodity prices rise, but also when prices fall.

Options trading also includes the following risks:

1. Option trading involves high market risk, which means that the market can move in all directions without sufficient warning.

2. Basic issues affect the value of basic assets.

3. Due to low liquidity, the interest margin of options is high.

4. When an option expires, it is often worthless, causing the buyer to pay all the losses of the option.

Future Agreements:

A futures contract is an obligation to purchase or sell the target product at a specific time and price. The term “obligation” here means that when the contract expires, the trader must purchase or sell the underlying product at the agreed price.

We know that the predetermined price for the purchase or sale of assets is the time limit price. In addition, the estimated time of delivery and payment is called the delivery date.

Futures bring unique risks to investors, but they have several advantages.

1. Gifts always have intrinsic value.

2. The future market liquidity is very high, so these markets are more efficient and fair

3. Low commission and execution costs for future contracts

4. Allow high leverage

5. Gifts help diversify.

But gifts always carry unlimited risks. The following are some noteworthy shortcomings of future transactions:

1. The high leverage level provided by future trading may be a double-edged sword for traders.

2. Futures contracts are signed on a fixed amount and terms.

3. Low execution fee will encourage traders to over trade

4. The futures contract only provides part of the rough.

5. Gifts are for a large number of basic goods or tools. Therefore, they may be too big for new traders to try to learn futures trading.

Select future agreements or options:

Futures contracts and options have their own advantages and disadvantages. Therefore, choosing one over the other can be a bit confusing and challenging. Most experienced traders choose two types of transactions based on the situation, risk appetite and liquidity. Some traders only care about one type of transaction.

However, active traders choose futures contracts, because futures are more liquid than options, in order to profit from market fluctuations. The futures market is widely used for trading crude oil, natural gas, coffee, cocoa and other bulk commodities. In addition, futures contracts are very useful in managing commodity costs.

On the other hand, some other traders prefer to provide insurance options for their investments. Because options are lower commodity costs than futures contracts. This seems easier. Because many free or paid signal providers help traders decide to buy or sell up or down options.

Last sentence:

So, finally, we should encourage you to study the future and options in depth. Knowing all the details before executing the transaction will help you make the best decision. Both transaction types have advantages and disadvantages. Therefore, you must choose products that match your strategy, objectives and risk appetite.