There are different instruments in the market to fulfill the needs of the traders. The stock market is one such market in which the deal takes place between the buyer and the seller and the settlement also happens on the same day. This is also known as the cash or spot market.
There is one another market known as the derivatives market where stocks are traded and the deal made but the delivery is at an agreed upon later date. Here the no. of stocks are fixed and known as a lot.
In a futures contract one can purchase a lot from the exchange by paying the margin amount. At expiry date the contract is to be honored by making the settlements. The margin amount is a small percentage of the actual cost of the contract. Hence losses can be very big in case of loss and also there can be big profit if your bet is right. The buyers get their profits from the losses made by sellers and vice versa.
In Options contract also there are lots that are decided by the exchange. The premium is also decided by the exchange. However in the options the buyer has a right but no obligation to honor his contract. The seller of the contract has no right but full obligation to fulfill the contract. When you are bullish on some stock you buy a call option. Meaning that you feel the price of the stock will move above the strike price. When you are bearish on a stock then you buy a put option. Meaning you feel that the price of the stock will move below the strike price. B) The exchange decides the lot size and the premium. In options for the buyer of the option the profit is unlimited
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