How to Start a Stock and Options Trading in India

How to Start a Stock and Options Trading in India

Difference between Futures and Stock Option Trading

While the futures stock trading is a contract to sell or buy a security at a particular time in future at a certain specified price, the stock options trading is slightly different it gives a buyer the right to do the same but there is no obligation to do so. This right comes at a price, referred to as a premium. One of the major benefits is that it gives the buyer the right to sell or buy a specific underlying security at a pre fixed price on or before a specific date. In a bearish scenario, your loss is curtailed to the premium amount you have paid. By paying a small premium, an investor is sure that he can buy or sell the stock at the strike price. A buyer can take advantage of assets whose value may increase substantially in the future. There is limited risk and greater potential for profit during option trading.

Kinds of Option Trading

There are 2 kinds of options call option and put option. The call option is the option which gives a buyer the right to buy an underlying security by a future date at a specific predetermined price. The put option gives the right to sell an underlying security at a certain price by a certain day. The future price, which is called the strike price, is determined by a number of factors. Taking the call option is a bullish stance when you expect a specific stock price to rise and a put option is a bearish stance when the price of the stock is expected to fall.

Starting Option Trading

Just like stock trading, futures and option contracts are traded on both the BSE and NSE. In case of BSE, they are traded on the Derivates Trading and Settlement System. An investor would have to register with a stock broker who is authorized to deal in the Derivates Segment. During a contract, the premium has to be paid in cash.

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