Can someone explain what are futures, options and swaps?
In: Economics
Futures and options are basically bets that a security or commodity will be above or below a specific price by a specific date. The difference is that with options, you don’t actually have to fulfill your end of the contract (you have the *option* to not do so), so if you bet wrong you don’t lose anything beyond what you paid for the contract. With futures you don’t have that option – if you have a contract saying you’ll buy 100 barrels of oil at $50 a pop, and when the time comes oil’s only worth $2, sucks to suck, you’re still paying $50.
There’s not really an ELI5 explanation for swaps. They’re like futures but with stuff like interest rates, I guess. They can’t be traded by retail investors (that’s you) anyways so it doesn’t really matter.
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