Thinking about whether to start with futures or options? Both are popular derivatives that open doors to strategies beyond simply buying and selling shares. Yet, each follows its own rules and requires a different mindset. If you are new to trading, you’re probably wondering which route makes more sense for your risk appetite, capital, and learning curve.

This article explains what futures and options are, how they differ, and what you should consider before starting. By the end, you will have a better idea of which, or even both, could fit your trading style.

What are futures?

A futures contract is an agreement to buy or sell an asset at a fixed price on a predetermined date. These assets could be equity, commodities, and currencies. Both parties must honour this agreement, whether the market goes up or down. 

For instance, if you buy futures of a company at ₹2,500 per share and the price climbs to ₹2,600 at expiry, you make a profit of ₹100 per share. If it drops to ₹2,400, you bear the loss.

What are options?

Options give you the right, but not the obligation, to buy (call) or sell (put) stocks at a fixed price before the contract expires. To obtain this right, you pay a premium. If the price moves in your favour, you can exercise your option and pocket the profit. If the market moves against your prediction, the most you stand to lose is the premium.

For example, buying a call option at ₹3,000 for a ₹50 premium means if the stock rises to ₹3,100, your net gain is ₹50 per share after accounting for the premium. If it falls, your maximum loss is the premium, not the entire share price difference.

Key differences and what they mean for you

Even though both futures and options operate in the derivatives segment and can be used for speculation or hedging, the way they function is fundamentally different.

Feature	Futures	Options
Nature of contract	Obligation to buy/sell at a future date	Right (not obligation) to buy/sell
Obligation	Must fulfil contract	Holder chooses whether to exercise
Rights & obligations	Both buyer and seller have obligations	Buyer has the right, seller has obligation
Risk and reward	Unlimited profit or loss	Limited risk, profit prospects remain
Price movement impact	Direct correlation with the underlying asset	Non-linear, influenced by pricing models
Market participation	Speculation or hedging	Speculation, hedging, and income generation
Initial investment	Margin requirements apply	Premium paid upfront
Settlement	Daily settlement	Exercised or expires at contract end
Flexibility	Less flexibility, must meet contract	More flexible, exercising is optional

Futures and options | Which is better for new traders?

Take a look at these essential points to figure out whether futures, options, or an F&O combination might fit your needs as a new trader:

Risk exposure

Options tend to be safer for beginners because your risk is limited to the premium you pay. If the market moves against you, you simply lose this amount and no more.

Futures, while simpler to understand in terms of contract structure, require more active risk management because potential losses can be higher, especially in volatile markets. This can be stressful for those still learning how markets behave. 

Capital requirement

Futures generally need you to maintain a margin, which ties up more capital. Options require a lower upfront investment, which makes them accessible even for those who are just starting and might want to test the strategies with smaller amounts.

Learning curve

Options trading requires you to learn different types like calls, puts, strike prices, and expiry dates. Futures are simpler in structure, but they also require a solid understanding of margin, mark-to-market settlement, and position management due to the higher risks involved.

The best share trading app makes it easy to grasp these concepts through in-app educational content like articles, video tutorials, FAQs, and user guides.

Flexibility

Options provide greater flexibility. You decide if and when to exercise your rights. Futures contracts require you to honour the agreement at settlement.

As you can see, both instruments can be used for hedging, but options are more appreciated for their flexible approach and the safety of limited risk. 

Closing note

Futures and options are simply different tools for different trading strategies. Each comes with its own set of features, risks, and opportunities. Your decision should reflect your goals, trading style, comfort with risk, and the level of understanding you develop over time. With experience and a willingness to keep learning, you can use both instruments strategically as your confidence grows. 

For an affordable, informed, and hassle-free F&O trading journey, consider MO Riise. Backed by the legacy of Motilal Oswal, a SEBI-registered public entity, the app is trusted by 40 lakh+ users. Benefit from a pre-made options watchlist, high-quality research ideas, ready-to-use F&O setups, live news and sentiment updates, helpful technical analysis tools, and access to StoCoMo (an in-app community). For any queries, 24/7 help is also available.

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