What are options and futures?

Options and futures are both types of financial derivatives commonly used by traders to hedge risks or speculate on future prices of assets.Options give the holder the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a predetermined price, known as the strike price, before the option expires. This flexibility allows the holder to leverage market movements without the full financial commitment of owning the asset.Futures, on the other hand, are contractual agreements to buy or sell an asset at a specified future date and price. Unlike options, parties in a futures contract have the obligation to fulfill the terms of the contract at expiration. This makes futures a popular choice for hedging because it allows traders to lock in prices and mitigate the risk of price volatility.Both options and futures are traded on exchanges and can be based on a variety of underlying assets including commodities, stocks, or indices. These instruments are integral tools in the financial markets, providing investors and traders with mechanisms to manage financial exposure and align investments according to their risk appetite and market outlook.