To understand the concept of Futures and Options the best way is to go through the definition. Futures and Options abbreviated because F& O are common forms of financial instruments called derivatives. Derivatives are financial devices which derive its worth from the underlying asset. the Futures contract is a lawfully binding agreement to buy or even sell a financial instrument in a designated future month at a price agreed upon when the avertissement of the contract took place between the buyer and the seller.
long term contracts are suitably standard according to the quality, quantity, shipping time and location with respect to dealing with commodity derivatives. In a futures and options contract, both agreeing events are obligated to perform their own agreed responsibilities, and the protector here is the exchange, who requires responsibility to ensure that the decided trade is done justly.
To further elaborate on the same lets evaluate it with an example; imagine you are a fruit vendor selling mangoes and are within trade talks with a profitable farmer who is the owner of numerous mango trees. The character before the onset of the manga season agrees to sell their produce of one year for a predetermined fixed price to you. A similar type of trade including Futures takes place but through the exchange; where exchange really plays the role of a respected arbitrary functionary to ensure that the trade is carried out in a fair manner because pre-decided.
Some inherent advantages of trading with Futures contract consist of:
It is a contract between 2 parties through an exchange.
trade is the legal counterparty in order to both parties.
Quantity and high quality both are decided on the same day time as per standard denominations because specified by the exchange.
futures and options in a certain sense can be said to be a further specialized system of forwards which is supported by our own stock exchange. The biggest advantage of investing through futures options is that the buyer or seller can enjoy a fair play as the industry is routed through the trade. Hence here the trade or its clearing division obligates the concerned party to buy or sell the specified quantity of the underlying product for a specific cost on a specific date.
The underlying assets could be commodity, share index, security, or foreign currency. Here the biggest advantage is that since all the terms of a listed futures contract are usually structured by the exchange, you cannot offset your contract and get out of your obligation by buying or even selling an opposing agreement before the settlement date.
This is surely a blessing for some investors called hedgers as this scheme offered a sense of protection from the volatility of marketplaces. For e. g. grain farmers can protect on their own against a bad season whenever yield is less by buying the futures contract at a lower price likewise the farmers can safeguard themselves to ensure a minimum purchase price by buying contracts which are higher to shield towards a bumper harvest. therefore they are making sure that even if there is a bumper crop, they will nevertheless get the price as made the decision while purchasing of agreement.
For both Futures and Options, I believe it still early days in the Indian markets and with the number of investors increasing every year, individuals participating to use this product as a good tool of opportunities is only on its lignage and the best is however to come in the coming many years.
Disclaimer:
1. Views as are mentioned in the article are usually personal views of writer and nothing to link along with Co., its Director plus Employees.
2. All opportunities are subject to market danger and you need to consult your financial advisor/consultant before investment.
I am a financial lover willing to share knowledge upon equity, stock market, F& O and mutual fund marketplace in India. I have furthermore conducted a detailed analysis upon emergence of Futures and Options as a growing investment tool.
Everyone within India understands trading within equities; most people are even specialists at it, but ‘Currency Derivatives’ segment remains ignored by a vast majorit…
Video Rating: 4 or 5
