Futures vs options: what are the key differences?

 What are the differences between futures and options? 

The main differences between futures and options are:

1. Expiry dates
2. Markets to trade
3. Right vs obligation
4. Medium of exchange

Expiry dates

Futures contracts have set expiries – divided into several dates throughout the year – on which the underlying asset can be exchanged. Each expiry date is only active for a certain amount of time. For example, index futures usually expire on the third Friday of the month. When a futures contract expires, it cannot be used to trade the underlying market anymore and must be settled.

Options contracts have daily, weekly, monthly and quarterly expiry dates. You can use daily options to take a view on whether you think a market will be above or below the strike price at market close on the same day that you open your trade. We’re the market maker for daily options contracts, and you might not find them with other providers.

Learn more about our daily options offering

Weekly, monthly and quarterly options work similarly, expiring before the following Friday (weekly options) and the third Friday of the month (monthly options). The expiry date for quarterly options will depend on the market being traded. When the options contract expires, it can be rolled over or settled.

Learn more about our weekly and monthly options offering

Markets to trade

With futures contracts, you can trade a range of assets. These include sought-after commodities such as gold, corn and oil; global indices, including FTSE 100, Germany 40 and Wall Street; as well as UK, US, German and other international bonds.

Options contracts also cover a variety of asset classes: popular forex pairs – majors, minors and exotics; global stocks, for example Tesla; major indices, for instance FTSE 100, Germany 30 and US 500; and commodities including oil (US Crude), gold and silver.

Right vs obligation

When trading futures contracts, you have the obligation to settle the contract by exchanging the underlying asset at a fixed price before the expiry date. When buying put or call options on the other hand, you have the right but not the obligation to exchange an underlying asset at a certain price before the expiry date.

Medium of exchange

Futures are exchange traded, which means they’re bought and sold on a marketplace where parties come together to buy and sell specific quantities of an asset. The Chicago Mercantile Exchange (CME) is one of the most well-known futures exchanges.

Generally, options are also traded on exchange, which means they’re standardised contracts that are settled through a clearinghouse. The most famous options exchange is the Chicago Board Options Exchange (CBOE). If you’re looking for a little more flexibility, you can trade exotic options over the counter. This private arrangement between a buyer and seller offers a non-standardised price and expiration.

We offer options and futures via derivatives, namely CFDs. With derivatives, you can speculate on financial markets without taking ownership of underlying assets. CFD losses can be offset against profits for tax purposes.* You can also use CFDs to spot trade thousands of markets – this enables you to deal at the current market rate.

Similarities between futures and options

There are a few similarities between futures and options. Both are:

• Derivative products: you can trade the underlying market without taking ownership of the asset in question
• Speculative: you can buy or sell the underlying market price, trading on markets that are rising and falling in value
• Leveraged: you can get full market exposure for a small percentage of the total trade value. Note that profits and losses can be magnified as both are calculated off the full value of the trade, not just the initial deposit

It’s important to remember that, when you trade options or futures with us, you’ll actually be opening a CFD position on the underlying market.

Futures trading basics

Futures trading enables you to speculate on the price of an underlying futures market using derivatives such as CFDs. This means that you won’t take direct ownership of a futures contract, and so you won’t have to take on any of the obligations involved in settling the contract. Instead, you’ll be speculating on the contract’s price rising by going long, or falling by going short.

When you trade CFDs you’re entering into an agreement to exchange the difference in the underlying market’s price from the point at which the position is opened to when it’s closed.

In both scenarios, the accuracy of your prediction and the extent of the market movement will help to determine your profit or loss.

Explore futures trading in more detail or learn more about trading futures with us

Options trading basics

Options trading means you’ll be speculating on the price of an underlying options contract rising or falling using derivatives such as CFDs. Options contracts are agreements that give the buyer the right, but not the obligation, to exchange an asset at a set price on a specific date in the future. When you trade options with CFDs, you don’t need to take on any of these obligations.

There are two types of options: calls and puts. You’d take a buy position if you thought the option’s price would rise, and a sell position on a call option if you thought the price would fall.

Again, with CFDs your profit or loss is determined by the difference in the underlying market’s price from the point at which the contract is opened to when it’s closed.

Read more about trading options or find out how to trade options with us

Derivative alternatives to futures and options

You can speculate on the spot price of underlying markets via CFD trading.

CFD trading

CFD trading is also a well-known method used to speculate on underlying markets. When you buy or sell a CFD (contracts for difference), you’re agreeing to exchange the difference in the price of an asset from when you opened your position to when it’s closed.

As you never own the underlying asset when trading CFDs, you won’t have to pay stamp duty. And, you can offset any losses against profits for your capital gains tax (CGT) liabilities.*

Learn about the benefits of CFD trading

Pros and cons of trading futures and options via derivatives

Pros of futures and options trading with CFDs

• Pay no capital gains tax
• Deal on rising and falling prices
• 24-hour dealing
• Losses can be offset against profits for tax purposes
• Trade with leverage

Cons of futures and options trading with CFDs

• Leveraged trading can amplify losses as well as profits
• You will pay stamp duty on your profits

Futures vs options summed up

• Both futures and options are leveraged derivative products, and are used for speculation
• They have set expiry dates, covering different timeframes throughout the year
• You can trade commodity, index, currency and bond futures, or options on the price of currencies, shares, indices and commodities
• You can settle futures or options with the physical delivery of the asset or in cash
• Futures are traded on exchange, while options can be traded on exchange or over the counter (OTC)
• There are many benefits of trading options and futures with CFDs, including tax efficiency, the ability to trade on leverage (which magnifies both profits and losses) and 24-hour dealing

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* Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.