Options Trading Versus Futures Contracts: What’s the Difference?

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It’s easy to confuse options trading and futures contracts. They operate on similar concepts, the primary one being that the actual trade takes place at a later date. However, they’re entirely different investment strategies.

One of the first things you need to know is that having a basic understanding of traditional trading will serve you well if you decide to pursue options trading or futures contracts. The better you understand how Wall Street works, the more prepared you’ll be to make critical decisions.

Additionally, both options trading and futures contracts often require you to have a margin account with your broker. In other words, you’ll be borrowing shares of stock from your broker, so you need approval to trade on margin. Lower-level options trading won’t necessarily require a margin account, but make sure you know what your broker demands.

With those two quick facts out of the way, let’s dig into options trading and futures contracts. What makes them different? And how do you utilize them to build your wealth, whether you’re a member of The 10-Minute Millionaire or not?

What Is Options Trading?

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Options trading is essentially a contract between the buyer and seller of a security, such as shares of stock. You enter into an agreement that gives you the option to either buy or sell those shares at a predetermined price and by a specific date.

It’s kind of like putting down a deposit to rent an apartment. You’re not sure it’s your dream home yet, but you don’t want someone else to snap it up while you view the rest of the properties on your list.

If you decide to rent it, your deposit will be returned to you at the end of your lease. You get the benefit of this great apartment. If you decide you don’t want to rent it, you lose the deposit, but you don’t have to pay 12 lease payments.

Options trading involves you putting a “deposit” down on shares you might want to buy in the future. You expect Stock XYZ to break resistance in 10 days, so you agree on a price with the seller. If the price starts to move against you, don’t execute the option.

What Are Futures Contracts?

Futures contracts are different from options trading in one very specific way: You have to follow through with the contract. In other words, you’re not buying the option to execute the trade, but agreeing to execute the trade by its expiry.

The futures market spans lots of different investables, from indices and commodities to currency pairs. Whatever the case, you and the other party agree to exchange money for the asset in question at a specific price and by a particular date.

That might sound a lot like trading in the future, but there’s a difference. Let’s say that you sign a futures contract on May 11 and it expires on August 11. That gives you lots of opportunities to execute the trade. You might decide to execute on May 12 or August 10.

You have time to watch the market and determine the best time to maximize returns and mitigate your risk.

Which Is Better: Options Trading or Futures Contracts?

Neither options trading nor futures contracts are better or worse than the other. Every trader has favored methods of capitalizing on investables, so you might want to try out both.

For many, though, options trading wins hands-down. It’s better for risk-averse investors who would rather lose a little than a lot should the investment move against them.

Over time, as you experiment with different types of trading, you’ll develop a better intuition for what works and what doesn’t. If futures contracts scare you, don’t use them to build your wealth. Stick to buying stocks, shorting stocks, and options trading instead.

Does The 10-Minute Millionaire Help You Learn Options Trading?

If you want to learn options trading quickly and with as little risk as possible, consider signing up for The 10-Minute Millionaire.

Reduce Your Risks

I have a long track record of correctly predicting how individual stocks, as well as indices, will move over periods of time. By sharing that information with my subscribers, I’m able to maximize their wins and reduce their losses.

Am I wrong sometimes? Of course. Nobody has a 100 percent track record in the stock market. However, in having me by your side as you pursue options trading, you’ll have a much lower risk of losing your hard-earned money.

Work Your Way to Millionaire Status 10 Minutes at a Time

A lot of people don’t have the hours, weeks, and months of time required to really understand options trading. I understand completely. Between work, family functions, friends, social engagements, and other responsibilities, you’d rather allocate your time toward something other than reading endless stock charts.

My entire thesis is built around becoming a millionaire 10 minutes at a time. It’s easy, efficient, and built for busy people.

Conclusion

Options trading is much different from futures contracts. They both offer opportunities to profit from the stock market, but you can’t go into it assuming they’re the same thing.

Most importantly, options trading gives you the opportunity to decline to execute. You don’t have to go through with the sale or purchase of a given asset. You’ll lose the money you paid to create the contract, but you can stem your losses there.

Futures contracts are a little bit riskier. They require you to follow through, and even though you have some time to consider your options, you eventually have to sell or purchase the asset. Additionally, you’re trading on a completely different market, and learning it takes time.

Sign up for The 10-Minute Millionaire to learn options trading faster and more efficiently. I’m excited to watch you become a millionaire in just 10 minutes a day.

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