Derivative instruments derive their value from the underlying assets performance. Futures and Options are 2 derivative instruments used in india.
In the Futures contract, the buyer and the seller has the right to buy/sell respectively and must fulfill the settlement at the end of the contract period. A small refundable amount is paid to the exchange to carry out this deal.
Options contract can be either Call or Put option. In call option, the buyer has the right to buy with no obligation by paying a premium to the seller. In Put option, the buyer has the right to sell with no obligation by paying a premium to the seller. Both Futures and options can be used effectively to reduce the risk for effective trading.