When it comes to online trading, futures and options are both quite popular financial instruments. Before we consider which is more profitable – let us begin by understanding their basic meaning.

Meaning of Futures Trading

The future is a financial instrument similar to a forward contract as it derives its value from an underlying asset. The investors of a futures contract do not have an ownership right on the asset. For companies, the equity share value would be the underlying asset, and for an index, it is the spot price.

Meaning of Options Trading

The financial instrument gives an ‘option’ to the investor either to sell (put option) or buy (call option) at the time or before the contract expiry period. The investor will pay a premium fee to the seller, and the seller has to fulfil the promise of the sale of the contract.

Now, let us understand these financial instruments’ advantages more deeply.

Starting with futures trading, below are the benefits of a futures contract.

  • As the futures trading is dependent on the value of the underlying asset, any kind of movement in the price of the asset is directly proportional to the future contract’s value.
  • Liquidity is one of the most crucial aspects of futures trading. The standing offers and bids make the process convenient for the interested investors to decide on entry or exit.
  • In the case of futures trading, the contract can be carried forward to the upcoming month’s contract at the same value as the expired contract price.

Benefits of Options Trading

  • The most convenient aspect of options trading is that it gives a right to the buyer to decide if they want to go ahead with the purchase or not. If the spot price is not in your favour, you do not have to go on to exercise your right.
  • A one-time premium fee allows the option buyer to be a part of the larger picture of options trading.
  • The attractive aspect is the returns as the return on investment can be considerably high as it can be unlimited as against the cost charged by one-time premium.

Options Trading vs Futures Trading – Which is more profitable?

In the world of online trading, everything is subjective. It all comes down to two factors – the risk appetite of the investor and your perspective of the market. However, there are some points which can help you ascertain which strategy can be better suited for you:

  • Futures are known as compulsory derivatives instruments, whereas options are optional.
  • In options trading, the buyer’s risk is limited to the cost of the premium. On the other hand, the risk to be borne by the seller can be unlimited.
  • In futures trading, both parties are equally associated with trade risk.
  • Although the options carry an option of rolling out, they also have a different premium cost for varied expiry, which in the case of futures trading remains the same.

What we can observe from the above is that both the financial instruments have their pros and cons. It all depends on how rational you are willing to be in your judgement while doing day trading. It is important to assess and carefully plan risk management strategies after analysing the market for both instruments to survive in the long run.

You can simplify your F&O trading journey with the help of an options trading app. The options trading app will help you with pre-built strategies and live market views. You can manage your portfolio from anywhere at any time. The options screener will scan various options based on multiple parameters. The graphs on the options trading app will present the risks and rewards associated with every option strategy.

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