What is Futures and Options (F&O) Trading?
Futures and Options (F&O) Trading generally known as ‘Derivatives,’ are financial contracts that derive their worth from an underlying asset. The concepts associated with derivatives are wide and have many tinges. We encourage you to go through the following modules on Varsity to understand the concepts better.Futures and Options (F&O) Trading
What are derivatives?
As the name shows, derivatives are financial collaterals that ‘derive’ their worth from rudimentary security or benchmark. Stocks, currencies, commodities, and bonds are some of the most natural underlying collaterals. Any ups and downs in the price of an underlying benchmark result in ups and downs in its derivatives’ prices.
What is the future?
To initiate with the definition, futures are derivative contracts that need the buying/selling parties to negotiate security at a pre-arranged future price and date. The contract dictates the consumer purchase and seller sell the underlying security at a pre-arranged price on the expiration date, irrespective of its current price.
The Benefits of F&O Trading
The topmost benefit of F&O trading is that you can invest without actually investing in the asset – you don’t have to purchase gold or any other goods, such as wheat, for instance, and still cultivate the advantages of fluctuations in the cost of such commodities. The equal principle is implemented for futures and options trading in the stock market — you don’t have to invest in the profit. Yet another benefit of F&O trading is that the cost of proceedings is not very high.