What is the difference between a financial future and a financial option?

What is the difference between a financial future and a financial option Introduction: The World of Derivatives Hello everyone, and welcome to another insightful video on the intricacies of finance. Today, we're diving into the realm of derivatives, specifically financial futures and financial options. These instruments play a crucial role in modern financial markets, enabling investors to manage risk, speculate on price movements, and much more. Let's begin by understanding the fundamental differences between futures and options. Defining Financial Futures: Contracts of Commitment Financial futures, often referred to as futures contracts, are agreements between two parties to buy or sell an asset at a predetermined price and date in the future. These contracts are standardized, meaning they have specific terms, such as the quantity and quality of the underlying asset. Futures are typically traded on exchanges, providing a centralized marketplace for buyers and sellers. One key aspect of futures is that they carry an obligation to fulfill the contract. This means that both parties are legally bound to execute the transaction when the contract expires. Exploring Financial Options: The Power of Choice Financial options, on the other hand, grant the holder the right, but not the obligation, to buy or sell an asset at a predetermined price, known as the strike price, within a specified timeframe. Unlike futures, options provide flexibility.