Important Factors to Know About Futures and Options Trading

In the world of finance futures and options trading represents two commonest forms of derivatives – which are actually instruments those drive their value from some underlying assets. Equities or shares, currencies, debt and even indices of assets can be considered as underlying assets in this respect.

Transferring price risk from one party to another willing party is the basic purpose that future and options training primarily serves and the process also facilitates risk allocation to those parties who are actually willing to take it. The widespread popularity in the segment of exchange traded derivatives that the Indian stock market has achieved, especially in options contracts and individual stock futures during the last decade or so, is truly a major success. 

Futures are contract agreement between two parties in which an individual agrees to by some underlying asset from a seller against a predetermined price and the seller also agrees to sell the same for the same price after a fixed interval of time. On the other hand in futuresand options trading options are known as contracts that allow the holder of the instrument to sell the instrument but not under any mandatory obligation. It also gives the buyer the right to buy but he too is not under any kind of obligation to buy an asset against any given price. The term given price is also known as the ‘strike price’ and payments are collected by the sellers for granting an option which is known as the ‘premium price of the option’.