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Saturday, July 14, 2007

Options Vs Futures - The Hot Dispute

Both options and futures were invented to limit or to avoid the trading loss because of market volatility some where in future. Both are fairly similar in their set up except in exercising methods. Options and futures are traded extensively today, are available for almost all financial instruments, and contribute largely for the stability of markets.

According to most experts, Options really have some added advantages over futures. The option holder is fully free in exercising the option. The maximum loss is a fixed one, the initial premium. Options can be exercised at any time before the expiration date. The trader can implement multiple trading strategies to ensure profit from even a worthless option. They can be traded for both long-term and short-term profits and the trades needn’t to have much knowledge of the underlying instrument. More over options are available for a variety of instruments including futures.

But futures trading include unlimited risk as the delivery of underlying instrument is an obligation on expiration date. With futures the trader does not have much trading options. But futures are still traded in large amounts because they present excellent opportunities to earn underlying instrument once the market direction is predictable. They are very good for traders having very good knowledge of underlying commodities and for those traders who does not want to twist their mind in complex strategies.

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