What is the difference between futures and options?

A futures contract is an obligation: both the buyer and seller are legally required to transact at the agreed price on the expiry date, regardless of where the market price ends up, which means losses on a futures position are theoretically unlimited in either direction. An options contract is a right, not an obligation, for the buyer: you pay a premium upfront for the option to buy (call) or sell (put) at a set strike price before expiry, and if the trade doesn’t move in your favour, you can simply let the option expire worthless, with your maximum loss capped at the premium you paid. The option seller, on the other hand, takes on the obligation side and receives the premium, but carries potentially unlimited risk if the market moves sharply against their position, similar to a futures contract. This asymmetry, capped risk for an option buyer versus uncapped risk for a futures trader or option seller, is one of the most important distinctions to understand before trading either instrument.