Futures and Options (F&O) are specialised trading instruments that fall under the derivatives category. A derivative is a contract whose value is determined by an underlying asset such as shares, gold, etc… In futures and options trading, it is not necessary that investors have to buy the underlying asset, but the profits can be earned from their price fluctuation in the stock market.
Trading in Futures Contracts?
Both futures and options contracts are listed on the stock market. Suppose you buy stock futures, then it’s the responsibility of the stock exchange, that you get that stock at the same price on the day of delivery that was fixed at the time of contract. It does not matter what is the share price at the present time i.e. at the time of delivery. In a futures contract, you have to complete the deal.
Trading in options contracts?
If we talk about options contracts, then here you have an option whether you want to buy shares or not. Suppose one share of ABC company is worth Rs 2,100. Now you think that after a month the worth of this stock will be Rs 2,200. You pay Rs 200 as a premium for the contract and say you will buy this stock after a month for Rs 2,150. After a month, that stock becomes worth Rs 2,500. In such a situation, this stock will cost you Rs 2,350 at the time of delivery. This is how you make a profit of Rs 150 on each share.
Suppose the stock prices drops to Rs. 2,000 then you can either buy the stock for Rs 2,150 or not. If you do not buy the stock, then you will lose the premium paid for the contract i.e. only Rs 200.
How to trade in Futures & Options?
To start trading in futures & options you need to open a trading account in a broking firm registered with BSE and NSE. To open a trading account, visit 5Paisa where you can trade in F&O.
While logging into the broking firm’s portal, you will get various futures & options contracts. By doing a little research, you can choose the best contract for you. Stocks can be traded in F&O on stock exchanges, commodities on commodity exchanges, etc. In futures & options, a share can’t be bought or sold like in the cash market, here trading takes place in lots and a lot contains many shares.
Visit 5Paisa to know more about trading in futures and options.