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Futures markets can be described as parallel markets, where traders can replicate positions in the underlying market
to hedge their risks, or alternatively increase their position and their risk.
In organised exchanges traders are required to deposit a Margin (to cover the position risk), which is based
on the historical volatility of the security. For example:
Margins for bond futures are usually less than 2% of the nominal value
Margins for equity futures may be 10% or more of the nominal value.
Positions are marked to market daily, with traders holding positions overnight required to deposit additional margins
at the start of the following trading session.
Options allow you to participate in price movements without committing the large amount of funds needed to buy stock outright.
Options can also be used to hedge a stock position, to acquire or sell stock at a purchase price more favorable than the
current market price, or, in the case of writing (selling) options, to earn premium income.
Options give you options. You’re not just limited to buying, selling or staying out of the market.
With options, you can tailor your position to your own financial situation, stock market outlook and risk tolerance.
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