LIFFE

Some buyers and sellers may wish to do a deal in the future. Such transactions are carried out within the London International Financial Futures and Options Exchange (LIFFE pronounced Life) which began in 1982 and by 1996 was the biggest futures exchange in Europe. Futures is a contract to buy or sell shares etc at a given date in the future at a price fixed today. The buyer hopes that by that time the price of the shares will exceed the price agreed so that the buyer can sell at a profit. For the seller, if the price has fallen the seller will now receive more money than the shares are worth. It is not possible for the buyer or seller to back out of the contract.

Options are different in that the buyer has the right to buy at the agreed price on a given date but is not obliged to do so. Obviously, if the price on that date is higher than the agreed price the buyer will take up the option. If the price on that day is less than the agreed price the buyer will decline the option. It looks as if the seller is in a no-win situation but this is not so because the potential buyer must pay a sum of money in advance to secure the option.