The spot market or cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. The exchange plays a major role in derivative instruments like futures and options. In futures exchange will maintain refundable margin from both the parties ,and manages the trade and the counter party risk.The main fundamental difference between options and futures lies in the obligations they put on their buyers and sellers. An option gives the buyer the right, but not the obligation to buy (or sell) a certain asset at a specific price at any time during the life of the contract. A futures contract gives the buyer the obligation to purchase a specific asset, and the seller to sell and deliver that asset at a specific future date, unless the holder’s position is closed prior to expiration. In futures contract the buyer is obliged to buy whereas in option contract, the buyer has the right and not obligation. The risk is very high in Futures contract and in Option contract risk is limited for the buyer. A futures contract is a contract between two parties where both parties agree to buy and sell a particular asset of specific quantity and at a predetermined price, at a specified date in future. A trader needs derivative contract mainly to cover the risk of price fluctuations of the underlying. Nifty 50 is an index of 50 stocks. It is not a company. So you cannot buy shares of Nifty 50. However, you can buy derivatives such as futures and options. Options contract are cash settled i.e; the difference of price is settled.

1 Comment
  1. vignesh 6 years ago

    Hi,
    your work is good.

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