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Margin: A margin in the futures market is the amount of cash an investor must put up to open an account to start trading.
MTM: The futures prices are bound to change every day, the differences in prices are settled on daily basis from the margin. This process is called marking to market (MTM).
Premium: The income received by an investor who sells or “writes” an option contract to another party.
Strike Price: The price at which a specific derivative contract can be exercised. Strike prices is mostly used to describe stock and index options, in which strike strike prices are fixed in the contract. For call options, the strike price is where the security can be bought (up to the expiration date), while for put options the strike price is the price at which shares can be sold.
Expiry Date: The last day that an options or futures contract is valid. When an investor buys an option, the contract gives them the right but not the obligation to buy or sell an asset at a predetermined price, called a strike price, within a given time period, which is on or before the expiration date.
Lot Size: For exchange-traded securities, a lot may represent the minimum quantity of that security that may be traded.
Future Contract is a contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a predetermined price in the future.
Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. The payment and delivery of the asset is made on the future date termed as delivery date.
The futures prices are bound to change every day, the differences in prices are settled on daily basis from the margin. This process is called marking to market (MTM). Thus, on the day of delivery it is only the spot price that is used to decide the difference as all other differences had been previously settled.
In derivatives market, people can transact huge transactions with small amounts and therefore it gives the benefit of leverage and hence even people who have less amount of money can enter into this market and also the costs such as basis expense, brokerage are less as compared to cash market.
Equity market or stock market is the meeting point for buyers and sellers of stocks. The securities traded in the equity market may be either public stocks, which are listed on the stock exchange or privately traded stocks.
Derivatives instruments in India are regulated by the Reserve Bank of India, Securities and Exchange Board of India (SEBI) and Forward Markets Commission (FMC). They play a major supervisory and advisory role in derivatives both with buyers and sellers in transaction and settlement on a daily basis.
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