In Stock Exchanges, there are Spot Markets and Derivative Markets. In Spot market, we can trade and settle on the same day.
In Derivative markets, Futures and Options are traded in Stocks and Indices.
Futures contracts allow a person to speculate on the direction of the market. Here, both parties have to pay margin, in order to facilitate MTM on daily basis. It has a fixed date of Expiry and the contract is valid till expiry date only. trading Futures are easy when compared to Options Contracts.
Option contracts have Call Options and Put Options. It is further sub divided into Four categories such as Call buying, Call selling, Put Buying and Put Selling.
In case of call buyers and Put Buyers, they have to pay Premium to call sellers.
Option Buyers have unlimited profit with limited risk of paying premiums.
Option sellers have only receipt of premium only, but they have unlimited risk, if the market moves in the direction of option Buyers.
Options have both physical settlement as well as cash settlement.
All contracts of Derivatives expire on the expiry date and have no value after expiry date.
Nifty, an Index of NSE could be traded in Futures and Options only. It can not be traded in Cash market, as it has no asset like share certificates.
Hi,
MTM is calculated on a daily basis and is either debited or credited to/from your trading account, It’s calculated in terms of positive and negative, A rise in the security means positive meanwhile a fall in price indicates a negative MTM.