For many investors, the trading of futures and options is considered a high-risk investment, while others perceive futures and options to protect against dramatic price fluctuations that occur on a daily basis in the stock market.
In futures and options can be complex because they are derivatives or hybrid investments. Instead of representing the property, like stocks or a promise of repayment of loan, with bonds. Futures and options are once ortwice removed from a real product. A futures contract with a company of crude oil, is betting how oil prices will be moving. what happens to the actual product itself is of little concern to such investors.
For some investors, the trading of futures and options are a means to reduce their investment risks. For example, farmers who agree to sell their grain at a good price are protected if the price of grain should fall. Investors who sell optionsshares they hold can compensate their losses if the market were to collapse. However, most investors that the dip in futures and options, do so because the possibility of maintaining a huge loss is offset by the possibility of a big gain. Individual investors play in this market area are generally smaller players, because the stakes are high and returns are unpredictable.
Although futures and options are offers that are made for futurethe future that they say when the contract are not very far. Take for example the futures contracts that are made on cereals and other food sources generally expires at in a year's contract, but investors may find futures of certain financial transactions that will last at least five years.
Most contracts expire with-in five months or less, although some options have been known to last as long as seven months. AlthoughThere is one exception to this rule is known as LEAP options, these are long term options that can last up to thirty months.
