Futures are derivative financial contracts that obligate the parties to transact an asset at a predetermined future date and price. The buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.
Options are financial instruments that are derivatives based on the value of underlying securities such as stocks. An options contract offers the buyer the opportunity to buy or sell—depending on the type of contract they hold—the underlying asset. Unlike futures, the holder is not required to buy or sell the asset if they choose not to.
Call options allow the holder to buy the asset at a stated price within a specific timeframe.
Put options allow the holder to sell the asset at a stated price within a specific timeframe.
- : The spot market or cash market is a public financial market in which financial instruments or commodities are traded for immediate delivery. It contrasts with a futures market, in which delivery is due at a later date.A spot market can be through an exchange or over-the-counter (OTC).
- : 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. In options it deals with the premium for the deal and executes it.
- : Margin: The deposit amount paid to exchange by both buyer and seller to sign the future contract, which is refundable. MTM – Mark to Market : Day to day leveling of price movement. Profit/loss will be realised on daily basis. Premium – The money paid to seller of the contract for signing the option contract. Strike Price- The agreed price printed in the option contract. Expiry Date- The maturity date/ the validity date mentioned in the contract. Lot size – Number of shared covered in the contract.
- : A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. An options contract gives the buyer the right to buy the asset at a fixed price. However, there is no obligation on the part of the buyer to go through with the purchase.
- : Seller gets the Premium amount for signing the call/put option contract, where the premium is traded between buyer and seller.In Call option,Buyer gets Right to buy and in Put option,Buyer gets Right to sell . In Call option, if prices rise,Buyer gains where as in Put option ,if price falls ,Buyer gains.
- : A futures contract is a legal agreement to buy or sell a particular commodity asset, or security at a predetermined price at a specified time in the future.
- : Futures/ call/put are required for traders to customize the trading. In the derivative market, the entire stock price is not required and only margin needs to be paid. And derivative markets reflects the price fluctuation on daily basis but in equity market, it can be realized only when the stocks are sold. Here, the percentage of Profit/Loss is much higher compared to Equity market.
- : To trade directly in the Nifty index two kinds of derivatives are available- futures and options. Nifty Futures:In a future contract, the buyer and seller agree to buy or sell the nifty contract on a future date. During the period of the contract, you can sell it and make a profit if you see that the price has gone up.
- : Cash settlement is an arrangement under which the seller in a contract chooses to transfer the net cash position instead of delivering the underlying assets whereas physical settlement can be defined as a method, under which the seller opts to go for the actual delivery of an underlying asset and that too on a pre-determined date and at the same time rejects the idea of cash settlement for the transaction.