subject: F & O derivatives- understand Derivatives [print this page] Derivatives are actually financial tools in simple words, it is an agreement between two people or two parties which is linked to the expected future price movements of the asset, for example- a share or a currency or gold.
Derivatives are of two types
Exchange traded- It is trading that is done throughout the world through various exchanges. It's more like the stock market. Among all the options available in derivatives the most common ones areF & o Derivatives.
Over the counter- These are derivatives that are not traded through any exchange procedure.
Some of the common OTC instruments are forwards, swaps etc. (popularly known as OTC)
Futures- is a standardized agreement between two parties to buy or sell a particular asset of standardized quantity and quality, at a specific future date at a price agreed today (the futures price).That is, the contracts are traded in future for exchange. Everyfutures options has to have the following features:
Buyer
Seller
Price
Expiry
Options- It Grants the right, but no compulsion, to buy or sell a futures contract at a planned price for a particular period of time.
Options further have two options.
PUT OPTION it permits all the buyers with the right to sell their underlying Assets
CALL OPTION- It permits the buyer with the right to buy the underlying assets.
Remember: In both cases the underlying Assets includes futures contract incommon markets& Shares in well indexed capital markets.
Futures contracts is one of such derivatives that provides the holder with an responsibility to make or take delivery under the terms that are mentioned in the contract, whereas in option the buyer has the right, but has no compulsion, to render a position that was before held by the seller of the option. F & O Derivatives are one of the most important forms of derivatives and so call for an appropriate discipline and experience to manage them effectively.
Thus, those who are dealing in F & O Derivatives should always take help of an experiencedfirm to guide better. This would help them to maximize their profits.
