Stock exchange collects a caution deposit from the traders to cover the counter party’s risk.
Stock exchange exercises Mark to market, to level the difference between strike price and market price on a daily basis.
Margin: When you open a futures contract, the futures exchange will state a minimum amount of money that you must deposit into your account. This original deposit of money is called the initial margin.
MTM: Mark to market – leveling the difference between strike price and market price on a daily basis.
In futures contract the buyer or seller has to execute the trade on the expiry date of that contract.
In options trade the buyer and seller have no obligation o execute the trade on the expiry date of that contract.
Premium: The amount agreed upon between the purchaser and seller for the purchase or sale of a futures option.
Strike Price: strike price is the specified futures price at which the future is traded if the option is exercised.
Expiry Date: Expiry Date is the time and the day that a particular delivery month of a futures contract stops trading, as well as the final settlement price for that contract.
Lot Size: In options trading, lot size represents the total number of contracts contained in one derivative security. The theory of lot size allows financial markets to regulate price quotes.
Futures Contract: It is a derivative instrument and legally binding agreement to buy or sell a commodity or financial instrument in a designated future month at a price agreed upon at the initiation of the contract by the buyer and seller.
when a cash settled option is exercised the writer of the contract pays any profit due to the holder in cash rather than any asset transfer taking place.
Futures and options
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