Future and option segments:
Over the last few years domestic market has seen increase interest in the futures and options segments.
Just as a share is bought and sold in market, a derivative is also an instrument that is traded. Its value is determined by underlying assets. Futures and options are two derivatives which are commonly traded.
A future derivative is a contract in which two parties agree to buy and sell something to each other on a particular price in the future.
An option is a contract which gives right, but not an obligation to buy or sell the underlying at a stated date and at stated price.
While a buyer of option pays the premium and buys the right to exercise the option, the righter of the option is one who receives the premium of the option and therefore is obliged to sell or buy the assets if the buyer exercises it on him.
Options are of two types:
Call gives the buyer the right, but not the obligations to buy a given quantity of underlying asset, at a given price on or before a given future date.
Puts gives the buyer the right, but not obligations to sell a given quantity of underlying asset, at a given price on or before a given future date. All the option contracts are settled in cash.
Few fundamental things of F&O segment
1) F&O accounts the majority of trading in the stock exchange in India. These are most popular instruments of trading worldwide.
2) To take buy/sell position on future stock, trader has to place some percentage of order value as margin. It means if trader buy the future contract worth rupees four Lakh, he just pay around ten percent cash to broker. This gives the opportunity to trade more with little cash.
3) Profit or losses are calculated every day until trader sells the contract or it expires.
4) Margin money is calculated everyday, which means if the trader does not have enough cash in his account, he has to deposit the margin money to broker or broker can sell his F&O contract and recover the money.
5) Unlike stocks, derivates have an expiry, which means if trader does not sell until a pre-decided expiry date. The contract is expired and profit or loss is shared you with by broker.
6) Future trading can be done on the indices. Nifty futures are the most traded stocks in India.
Cash trading is simply buying or selling securities by providing the capital needed to fund the transaction without relying on the use of margin.
Cash trading is achieved by using a cash account, which is a type of brokerage account that requires the investor to pay for securities within two days from the purchase are made.
Cash trading does not involve using margin, which means then tend to be safer than margin trading.
Cash trading also saves traders money in interest costs that would be incurred with margin account.
To trade effectively in the above mentioned segments, one should trade on the basis of Stock Cash Tips and Stock Option Tips from advisories like TradeNexa.