How are options different from futures?

Options and Futures are derivatives. Both are contracts and are derived from underlying instruments like Stocks, Currency, and Commodities etc.

A Future is a contract to buy or sell the underlying asset at a predetermined price and time. The buyer of a Future contract needs to honor the contract at the end. On the other hand, an Option is a contract that gives the holder the right to buy or sell the underlying asset at a predetermined price and time. The buyer of an Options contract may or may not be honored. Other differences between Futures and Options are-

• In Futures, both the buyer and seller are obligated to honor the contract whereas, in Options, the seller only is obligated to honor the contract when the Option is exercised.
• Futures require higher margin than Options.
• Futures have unlimited loss potential whereas losses in Options are limited.