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Options are traded both on exchanges and in the over the counter market. The two types of options: A. Put option B. Call option A call option gives the holder the right to buy the underlying asset by a certain date for a certain price. A put option gives the holder the right to sell the underlying asset by certain date for a certain price. the price in the contract is known as the exercise price or strike price and the date in the contract is known as the expiration date or maturity date. Usually one contract is an agreement to buy or sell hundred shares.

If futures contract is an agreement between two parties to buy or sell a asset at a certain time in future for a certain price. Unlike forward contracts, future contracts are normally traded on an exchange. to make trading possible the exchange specify set and standardized features of the contract. As the two parties to the contract do not necessarily know each other, the exchange also provides a mechanism that gives the two parties a guarantee that the contract will be honoured. Basically forward contracts Arden over the counter derivatives however futures contracts are done through exchanges. The largest exchange on which futures contracts traded are the Chicago board of trade and the Chicago mercantile exchange. The traded commodities include pork bellies, live cattle, sugar, wool, lumber,  copper,  aluminium, gold and tin. 

A Relative simple derivative is a forward contract. it is an agreement to buy or sell an asset at a certain future time for a certain price. The forward contract is opposite to spot contract, the spot contract is an agreement to buy or sell an asset today. A forward contract is traded in the over the counter markets usually between two Financial Institutions or between a financial institution and one of its clients. So how does a forward contract work? One of the parties on a forward contract assume a long position and agrees to buy the underlying asset on a certain specified future date for a specified price. the other party assumes a short position and agrees to sell the Asset on the same date for the same price. Foreign exchanges are mostly done on forward contracts which is quite popular with Financial Institutions.