Futures and Options are two investment instruments in a derivatives market.
Unlike share, which needs to be purchased or sold immediately, Futures and Options are contracts that give the buyer or the seller to purchase or sell a share at a future date and a future predicted price.
A future contract in the context of share market is a legally binding agreement or an obligation between the buyer and the seller to trade a particular security at a predetermined price, quantity, and a date. Futures are traded on a futures exchange which acts as a regulatory body and minimizes the risk of default by either of the parties.
Traders have to deposit an initial fund called as margin to avail the futures trade. If there is a major change in the price and the margin is insufficient, the exchange will make a margin call and the shortfall should be deposited by either party immediately, failing which the exchange or the broker will liquidate your position and any penalty or fee will be levied to recover the losses if any.
Options are similar to Future in many ways, and the main difference is, options give the trader the right to invest in a share for a specific price, but there is no obligation to buy or sell. If the investor chooses not to exercise the option, only the deposit amount will be lost by the investor.
Futures are mainly used for high valued transactions and are risky for an inexperienced investor.