Futures and options refer to particular types of derivative trading where market participants are permitted to transact on an underlying asset on a specific future date at a specific price.
Certain differences can be noted between futures and options. While futures compel a market participant to buy or sell an underlying asset on a fixed date options provide him the right to do so but they do not compel him to buy or sell in short in options trading the participant has the way to opt-out of his options.
In F & O, trading options are of two types:
When a trader is bullish on a specifying underlying asset and anticipates the value to rise he simply can exercise the call option.
Traders in F & O include both FIIs and the DIIs, the HNIs, Hedge Funds, Arbitragers, and lastly the Retail investors.
F & O because of their pervasive power in the financial world merit attention. In fact, these derivative instruments contribute heavily to hedging price volatility and assisting liquidity in the share market.
But Futures and options trading is considered a difficult job since the future prediction is not easy. However, these derivative instruments are instruments of lucrative trading for a final sound person with knowledge of the global economic landscape, fundamental analysis, and technical charts.
Therefore, these derivative tradings can be disastrous for beginners without any experience.
Important points to keep in mind: –
Despite inherent risks, many people are earning a handsome amount of money from trading futures & options.
But to be successful, one must follow a set of rules.
At first, one must use a good strategy for F & O trading. Secondly, consistency and disciple are a must. Above all, stop loss must be maintained, otherwise one can encounter capital erosion.
Furthermore, experts advise using F & O more as a hedge than trade. Margin opportunity attracts many traders. But this carries associated risks, for as profits can multiply, so the losses.
Again trade structure has to be set right. These include strike, risk, expiry, premium, etc.
Keeping all these things in mind, one has to embark on these derivative instruments. However, it should be kept in mind that the share market always carries associated risks. F & O trading like everything carries risk, more so because shares or indexes are bought here in bulks or lot sizes. Besides, margin opportunity entices the traders. F & O trading is highly valuable.
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