Derivative market – Futures and Options reward you better returns if you play it right compare to equity and bond market but carry a great risk too.
- : The spot market is where financial instruments, such as commodities, currencies, and stocks, are traded for immediate delivery. shares also called as equity. that's why share market is called as equity market.
- : 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 executed on the date agreed upon in the contract. On this date, the buyer purchases the underlying asset. Meanwhile, the buyer in an options contract can execute the contract anytime before the date of expiry. So, you are free to buy the asset whenever you feel the conditions are right.
- : A call is an option contract giving the owner the right but not the obligation to buy a specified amount of an underlying security at a strike price within a specified time. A put is an option contract giving the owner the right but not the obligation to sell a specified amount of an underlying security at a strike price within a specified time. The premium paid on Options is calculated using Option pricing models like Black-Scholes and Binomial pricing model. Market factors like demand and supply also factor in the determination of Options price.
- : 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 contracts are standardized for quality and quantity to facilitate trading on a futures exchange.
- : 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.
- : 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.