## Background As explained in the [[5. DeFi Terms|Terms]], a synthetic instrument (or "synth") is a tool financial engineers have devised which enables traders to take a position without providing the capital to actually buy or sell an asset. Synthetics allow us to simulate futures contracts while altering some key characteristics (like the duration of the contract, amongst other things) which can help reduce the risk taken when investing in any given future. There is a lot of jargon in all this, we know. "Futures contracts" are what they say on the label: contracts which have to do with the price of a given stock in the future. They are ways for investors to bet on what the price of a stock will be and potentially earn a profit if they are right. It's true that Wall Street is a glorified casino with arcane rules designed to be unclear - but we're not here to make too many moral remarks. We simply wish to provide you with the knowledge to make your own assessment and take an informed ethical stance. As laid out in the Terms, you enter into a "futures contract" when you choose to purchase a "call option" (which means that you have the right to buy a particular stock at a particular price at or after a specific date), or when you "write" or sell a "put option" (which means that you have the right to sell a stock at a particular price on or after a specific date). You can create a "synthetic position" by purchasing a call option and selling a put option simultaneously (which expresses a bullish sentiment), or selling a call and purchasing a put simultaneously (bearish). This may seem pointless, but only to the uninitiated. The puts and calls end up mostly cancelling each other out, and so **A synthetic option position has the same fate as a true investment in the stock, but without the capital outlay**. That is, you can profit from the movement of a stock's price, _without actually buying that stock_. This is why people get excited about synthetics and how they lower risk. ## Expiring Times Now that we have the background, we can understand the difference between these two simple machines: expiring and [[4. Perpetual Synthetics|perpetual]] synthetics. Again: it's just what it says on the label. Expiring synthetics have a set duration - after which they are either "rolled over" into a new contract or paid out. "Perpetual synthetics" have no expiry and are a means of investing in a token's price without actually buying that token, potentially forever. A good example of expiring synthetics is the "conditional tokens" that are generated by prediction markets like Gnosis. You buy both "yes" and "no" tokens (equivalent to calls and puts), and then sell the token you don't wish to hold based on your prediction. As the event comes closer and the likelihood of a given outcome becomes more clear - i.e. that "yes" is the option "in the money" - then the price of yes tokens will rise and the price of "no" tokens will fall. Once the event has happened - and it is proven that "yes" was correct - you can redeem your "yes" tokens for the proportion of underlying collateral in the pool. These expire naturally when the event being predicted has occurred, though the principal remains the same whether this is a prediction market or something more abstractly financial. Examples of more specifically financial products which leverage the idea of expiring synthetics are [Yield](https://people.duke.edu/~charvey/Teaching/697_2022/Public_Presentations_697/DeFi_Deep_Module_3.pdf) (who work with bonds) and Opyn (who work with options).