Stock Market is unique in many ways. It is shown in the ways it offer for trading
In a spot market, we pay and we get the product. Other than this direct method, stock markets provide some other ways to trade. It is the Future and Options Trade . These are called Derivative Trading.
When Future trading gives the buyers and sellers the rights to buy and sell, it also gives them obligations. In an Options trade, only one of the party gets the rights, where the other gets only obligations.
In a Call Option, buyer gets the rights to buy for a certain price on a certain date, but has no obligations. Only the seller has to oblige. For this risk, he gets a premium from the buyer. In a Put option seller has a right to sell and he gets a premium for that.
There are two types of settlements, Physical and Cash. In a physical settlement, at the end of the trade the seller has to give the buyer the product in physical state. In a cash settlement, seller has to give the extra money buyer spent on buying the product elsewhere. This extra money calculated against the strike price is deposited in the buyer’s account everyday by the Exchange.This is called Mark to Market (MTM). Exchange takes this money from the broker’s or seller’s Margin account.
Apart from shares , even the index of Nifty too can be traded in Futures and Options Market.