BAJAJ BROKING
Futures & Options (F&O) comprise the derivative trading in the share market. These contracts are signed by two parties for trading an asset on a later date, at a predetermined price. Futures and Options help reduce the future risk of investment by ascertaining a predetermined price.
In an Options contract, the option buyer has the right (but no obligation) to buy or sell stock at a certain price on the predetermined date, called the Expiry Date. On the other hand, in the Futures contract, the contract holder has to buy or sell shares on a certain date in the future.
Futures and Options are contracts that derive their price from the underlying assets such as shares, indices, commodities, etc. The markets for Futures and Options are quite distinct in the way they work, and the risk associated. A major volume of trading in the Indian Stock market happens in the Options segment.
The main objective of using derivatives is to hedge against the price movements of the underlying assets. There is an expiry date in derivatives on which the contract expires. An investor can square-off the position before expiry if lucrative profit is at hand, else, can carry the position till the expiry date.
Let’s get to know Futures and Options better with some useful basic terms associated with them.
F&O both are different in terms of obligations.
Futures contracts obligate the investors to either buy or sell stocks on a future date at a predetermined price. Investors often get involved in futures contracts to hedge against asset price changes.
Options contracts on the other hand are also financial contracts, but not obligatory. They offer versatility and are used in forming various strategies for trading. It gives a range of prices that can be locked for transactions on a future date.
Let’s understand Future Contract vs Option Contract
Future Contact | Secondary Market |
Contract holders are obligated to honour the contract on the expiry date. | Buyers of Option are not obligated to buy or sell the underlying asset on the expiry date |
Both buying and selling of Futures contract requires higher margin payment however it is not the same case in Options | Buying an Options contract attracts only the premium amount. The selling of Options attracts higher margins. |
A trader willing to take a position in a Futures contract does not have the range of strike prices, which is the price at which underlying asset can be bought or sold on a Future date | A trader in Option can select from a range of strike prices before entering the contract |
F&O Trading is buying and selling of Futures and Options contract in the share market. To buy or sell shares on a future date, an investor can approach the F&O market. In F&O, only margin amount needs to be paid and leveraged position can be taken.
Futures are fundamentally uniform with the same set of rules for both- “buyers and sellers”. On the other hand, Options can be divided into two types:
In both cases, the trade is optional. If the prices do not suit you then, you can choose not to utilize your call and put option.
Below are few things, you must know as an investor before you trade in Future & Options:
Trading in Futures & Options (F&O) is nothing like rocket science, a proper understanding will surely help you make better use of these innovative financial products. To know more, visit our trading app and learn about the different types of F&O contracts and how to trade them.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For All Disclaimers Click Here https//bit.ly/3Tcsfuc
Share this article:
Disclaimer :
The information on this website is provided on "AS IS" basis. Bajaj Broking (BFSL) does not warrant the accuracy of the information given herein, either expressly or impliedly, for any particular purpose and expressly disclaims any warranties of merchantability or suitability for any particular purpose. While BFSL strives to ensure accuracy, it does not guarantee the completeness, reliability, or timeliness of the information. Users are advised to independently verify details and stay updated with any changes.
The information provided on this website is for general informational purposes only and is subject to change without prior notice. BFSL shall not be responsible for any consequences arising from reliance on the information provided herein and shall not be held responsible for all or any actions that may subsequently result in any loss, damage and or liability. Interest rates, fees, and charges etc., are revised from time to time, for the latest details please refer to our Pricing page.
Neither the information, nor any opinion contained in this website constitutes a solicitation or offer by BFSL or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.
BFSL is acting as distributor for non-broking products/ services such as IPO, Mutual Fund, Insurance, PMS, and NPS. These are not Exchange Traded Products. For more details on risk factors, terms and conditions please read the sales brochure carefully before investing.
Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For more disclaimer, check here : https://www.bajajbroking.in/disclaimer
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading