frequently asked questions about futures and options (f&o)
1. what are futures and options with examples?
Futures and options are derivative contracts that can be bought and sold in the stock market. Futures contract is where the buyer and seller of the contract agree to trade in the underlying asset at a future date at a price determined in advance. Example: Consider an ABC company futures contract with an expiration date of August 25 that is available at Rs.100 (the current price of ABC shares in the live market is 105). The buyer of this futures contract is negotiating with the seller that on August 25, he will buy ABC shares at Rs 100 per share, regardless of the market price on August 25. In the options contract, the buyer and seller of the contract agree to trade in the underlying asset at a future date at a predetermined price. however, here the option buyer has the right but not the obligation to execute the contract on the expiration date.
2. Is f&o trading profitable?
If you understand the basics well, it is possible to be profitable in f&o trading. One of the reasons retail investors are excited about futures and options trading is that it is margin-based trading, meaning you can take a higher value position simply by paying a portion of the total amount.
3. which are better options or futures?
both options & futures have unique properties and serve as hedging tools for traders and investors. each one has its distinct functionality that can be useful in one instance or another for a trader.
4. How long can you hold futures for?
You can hold future contracts until the expiration date.
5. what is a more secure future or options?
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Both futures and options carry risk. Furthermore, since these are leveraged instruments, the extent of profit and loss, both are magnified.
6. How much money do you need to trade futures?
In the stock market, you can trade stock and indices futures. each futures contract has a different contract price. the margin requirement is specified by the exchange and depends on the volatility of the underlying asset.
7. How do I buy futures and options?
To invest in futures and options, you would need a trading and dematting account. all you need is an-f&o activated demat & trading account. To invest in futures, the investor pays a margin that is a part of the total participation to take a position. Once the margin is paid, the exchange compares your order with available buyers or sellers in the market. On the other hand, in options, the buyer of the contract selects the desired exercise price and pays the respective premium to the seller of the contract. while the option seller deposits a margin to take the position.