Derivative market is based on an underlying assets. Future and Options are the two most common form of derivatives.
Futures are traded for a predetermined price at a predetermined date set out in future. Buyer or seller has to compensate the market difference at the time contract execution time. Exchange will act as mediator between both parties by collecting a caution deposit. But now a days fluctuation in the market price will be settled day by day, by making a debit/credit in caution deposit paid by parties to exchange.
Options are traded with the expectation of fall or rise of stocks/index in the near future. Buyer or seller has the right to sell/buy stocks based on the agreeable strike price from current market price. Here, holder of the contract only awarded with rights to execute the contract on the expiry date by paying a small premium against whole lot size. The premium amount driven by sellers and buyers of the market.
Traders can opt for CALL/PUT option based on their interest.
