Explains the basics of FnO markets and the difference between that and the spot market and various types of option contracts

  • : Spot market or Cash market is which the stock is bought and sold at the current price and the settlement is done after the market closes for the day. In short it is Buying and selling shares immediately
  • : The role of exchange is to see the counterparty risks are managed well as compared to a forward contract where one party defaulting and the other facing losses is high. Exchange has to make sure that the profits and losses are also Taken from the other party and MTM happens correctly
  • : Margin is the caution deposit needed to be given in order to buy a future contract where in case of any defaults it can be used and Margin is fully refundable. MTM - Mark to Market, is when the profits or loses from the buyers and sellers are marked on par with the market. Premium is when an Option buyer has to give to the option seller, and that premium would be the highest Loss that can be made by the options buyer Strike price is the target price for an option buyer. For Example 22Jan, Means the last trading day of January 2022. Lot size is the multiple in which the instrument is sold
  • : Option is when the The buyer of the option has the right to buy or sell the underlying asset but is not under the obligation to.
  • : Premium is decided by the seller of the options and his profit is limited to the premium. Call option is the right to Buy an underlying asset and put option is the right to sell an underlying asset.
  • : Future contract is agreement between a future buyer and a future seller to purchase the stock on an agreed price regardless of how much the asset is trading in the market
  • : If the trader anticipated the price of the underlying asset to go up in a future date. they could use these derivative instruments
  • : Yes, but spot market is not available in Nifty but only Future and Options Market
  • : Physical settlement is when the buyer of the underlying asset buys the asset and the seller of the underlying asset is given the money for the sale of such an asset. Cash settlement is to reduce the logistics for a particular settlement. where the buyer buys the Asset in a market nearby where the price is lower than that which is quoted in the future contract and the sellers sells his asset in the nearby market and the gain of the buyer is given to the seller to mitigate his loses
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