Future and Options provides different ways to trade Financial Instruments unlike traditional cash transaction with physical delivery. It has following features:
> Terminology to be remembered: Spot Market, Derivative Market, Margin, premium, Futures, Call, Put, strike price, Lot size.
> MTM will be adjusted on day to day basis.
> Future Contracts defined as the contract between parties agreeing to buy/sell a specified quantity at a pre-defined price to be executed at a future date.
> Call Options contracts provides Buyer to exit contract without any obligation. However, premium required to be paid.
> Put Option, gives seller the right to sell at agreed price till the specified expiry period.
> F&O trading requires to pay only premium/ Margin Money,
> Trading allowed with specified lot size as prescribed by the company.
> Profits are higher within short span of time when compared to spot market. However, Risk is also higher.
> This F&O mode of trade, encourages traders to participate with high volume.
> NIFTY can also be traded in F&O.
> Role of Exchange in the Derivative Market is to ensure Margins of traders are protected and apply Mark to Market on daily basis.