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In the stock markets all over the world, many a new trader start off with options trading while professionals mostly opt for futures trading. This is mainly attributed to the fact there is lesser risk in options trading as compared to futures trading. The volatility in a futures contract is much more. Here are some basic details about Futures and Options trading India. It is often seen that new traders start with Futures and Options trading India instead of futures contracts, while professional traders usually trade in options. New traders start with options because there is less risk and volatility involved. This article is meant to give you introductory knowledge about Futures and Options trading India: What does Futures and Options mean? F&O can be defined in simple terms. It is basically a trading contract regulated by the exchange in which the investor commits today for a transaction, the settlement of which shall be done on a pre-determined future date. The date of settlement is when the contract shall expire. Futures: In a futures contract, the seller and buyer form an agreement contract for a particular asset. According to this contract, the sale of the specified asset has to be done on a particular future date which is pre-determined and mentioned in the contract. In these contracts, there is no actual sale or purchase of the specified asset before the settlement date of the contract. The payment of cash and delivery of the asset too are done on this pre-determined date. A futures contract means that both the involved parties are obliged to settle it on the date fixed. Options: Options contract are said to go one step ahead of futures contracts. This is because here the seller is given rights without any obligation on his part when it comes to sell or buy a specified asset on or until a pre-determined date at a price that has been agreed upon. However, the seller is obliged to pay a premium to the buyer a premium rate to the buyer if he wishes to have this right. The determination of this premium rate is based on a number of factors. Some of them are the current price of the asset in the market, the duration of the contract, the volatility level of the asset in consideration, the risk less rate of return and other such factors. In these contracts, the seller is obliged to sell the specified asset at a particular asset on a specified date.
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