Derivatives – Stage 3

Derivative market is different from spot market where the buyer owns the shares. In derivative market only contract will be traded between buyer and seller and the buyer will not own the share of the company. and the exchange will be maintaining mark to market (maintaining the market amount in the account of buyer and seller to avoid risk in the long run) on a daily basis. Both the buyer and seller has to pay Margin amount as a collateral which is a refundable deposit. Futures contract is an agreement between a buyer and seller to buy and sell a commodity at an agreed price on a later period – future, where both the buyer and seller will have rights and obligations, but in options the buyer gets the right to buy( call) or sell (Put) at strike price, but will not have any obligations, instead he has the option. To make the agreement the buyer pays a premium amount to the seller of the rights. The agreement will be valid till expiry date mentioned. usually it gets traded in lots.