What are Futures and Options Trading?
What is F&O Trading?
Future may be a contract to shop for or sell an underlying asset for a selected price at a pre-determined time. If you purchase a FUTURE CONTRACT, it means you promise to pay the worth of the asset at a specified time. If you sell a derivative instrument, you effectively promise to transfer the asset to a specific price at a particular time to the futures buyer. Every derivative instrument has certain characteristics. like - BUYER, fashat (SELLER), 4mT (PRICE), expiry (EXPIRY). Equity contracts are available in equity stocks, indexes, commodities, and currencies.
F&O is the abbreviation for Futures and Options. Futures and options are derivative products. Tell me what is meant by derivatives. Definition: Derivatives are securities that derive their value from one or the other underlying securities. Simple Explanation: A derivative is like buying a financial product whose value is derived from a real asset.
Trading within the stock exchange for a little amount of cash is feasible through futures. Future is traded in index or stocks. Trading are often done only after depositing margin money within the futures exchange. The index and therefore the margin of every share is decided by the exchange. Future trading is for a month.
Its expiry takes place on the last Thursday of the month. within the future trade, a day has the advantage and disadvantages of the book. just in case of loss, the trader has to structure it. trade in the longer term is the job of experienced traders. One shouldn't trade the longer term without experience. Many traders also use futures to hedge their portfolios.
let's learn intimately →
What are futures?
One sort of derivative is the derivative instrument. during this sort of contract, a buyer (or seller) agrees to shop for (or sell) a specific quantity of a particular asset, at a selected price at a future date.
Let’s illustrate this with an example. Let’s say you've got bought a derivative instrument to shop for 100 shares of Company ABC at Rs 50 each at a selected date. At the expiry of the contract, you'll get those shares are Rs 50, regardless of the present prevailing price. albeit the worth goes up to Rs 60, you'll get the shares at Rs 50 each, which suggests you create a neat profit of Rs 1,000. If the share price falls to Rs 40, however, you'll still need to buy them at Rs 50 each. during which case you'll make a loss of Rs 1,000!
Stocks aren't the sole asset during which futures are available. you'll get futures contracts for agricultural commodities, petroleum, gold, currency, etc.
Futures are invaluable in helping escape the danger of price fluctuations. a rustic that's importing oil, as an example, will buy oil futures to insulate itself from price increases in the future. Similarly, farmers will lock in the prices of their products using futures in order that they don’t need to run the danger of a fall in prices once they are able to sell their harvest.
What are the options?
Another quite derivative is the options contract. this is often a touch different from a derivative instrument therein it gives a buyer (or seller) the proper, but not the requirement, to shop for (or sell) a selected asset at a particular price at a specific pre-determined date.
There are two sorts of options: the decision option and the put option. A call option may be a contract that provides the customer the proper, but not the requirement, to shop for a selected asset at a specified price on a specific date. Let’s say you've got purchased a call choice to buy 100 shares of Company ABC at Rs 50 each on a particular date. But the share price falls to Rs 40 below the top of the expiry period, and you've got no interest in browsing with the contract because you'll be making losses. You then have the proper to not buy the shares at Rs 50. Hence rather than losing Rs 1,000 on the deal, your only losses are going to be the premium paid to enter into the contract, which can be much lower.
Another sort of option is the put option. during this sort of contract, you'll sell assets at an agreed price within the future, but not the requirement . as an example, if you've got a put choice to sell shares of Company ABC at Rs 50 at a future date. Share prices rise to Rs 60 before the expiry date, you've got the choice of not selling the share for Rs 50.
What is future and option trading?
One advantage of futures and options (F&O) is that you simply can freely trade these on various exchanges. For E.g. you'll trade stock futures and options on stock exchanges, commodities on commodity exchanges, and so on. While learning about what's F&O trading, it’s essential to know that you simply can do so without occupation of the underlying asset. While you'll not have an interest in purchasing gold intrinsically, you'll still cash in on price fluctuations within the commodities by investing in gold futures and options. you'll need much less capital to take advantage of these price changes.
F&O trading within the stock exchange
Many people are still unfamiliar with futures and options within the stock exchange. However, these are growing in popularity in recent years, so it might be to your advantage to find out more about them.
The National stock market (NSE) introduced index derivatives on the benchmark Nifty 50 within the year 2000. Today, you'll invest in futures and options in nine significant indices and quite 100 securities. you'll trade futures and options through the Bombay stock market (BSE)
The considerable advantage of investing in futures and options is that you simply don’t need to spend money on the underlying asset. you simply got to pay an initial margin to the stockbroker to trade. for instance, assume that the margin is 10 percent. So if you would like to trade stock futures worth Rs 10 lakh, you'll do so by paying Rs 1 lakh to the broker in margin money. Larger volumes mean that your chances of creating a profit are higher
0 Comments
We are waiting for your comments. 💙