Financial forward contract is the most basic financial derivative. It is a contract in which both parties negotiate in the OTC market to buy and sell some basic financial assets at an agreed price on an agreed future date (delivery date). Over-the-counter transactions, non-standardized contracts. Because there is no exchange constraint, both parties to the transaction are at risk of default.

For example, you agreed with someone to buy and sell a stock in three months, and now the price is set, and the stock will be traded in three months. The so-called non-standardized contract means that the price and time are agreed between you and your counterparty, not stipulated by the exchange.

Option, also called option, refers to the right to buy and sell in a certain period of time in the future. It is the buyer's right to buy or sell a certain number of specific subject matter from the seller at a pre-agreed price (execution price) in the future (refer to American option) or on a specific date (refer to European option), but it is not obliged to buy or sell. On-site transactions, standardized contracts. The buyer has paid the option fee for his right. The seller also basically has no default risk and is bound by the exchange.

For example, if you agree with your counterparty to deliver a stock six months later, you are the buyer. After 6 months, you can choose to exercise the right to buy shares, or you can choose not to exercise the right. The option gives the buyer the right to exercise the option if the stock price rises (the actual price of the stock has been higher than the delivery price set six months ago, and he can buy it at the set low price and then sell it to get the income); If the price goes down, you can give up this right, don't buy stocks, and avoid losses. Option is a contract made by the exchange, a standardized contract, and traded on the floor.