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The financial markets drive you immense profits but also come with volatile risks. For a seamless user experience with any financial losses, this field requires a deep learning curve, knowledge, and skills. To excel in this market, gaining an understanding of the concepts, fundamental analysis, and F&O trading strategies can help you achieve the desired financial goals.
So to understand the nuances of the field, delve into the article to know the things you must know before beginning the trading concept.
F&O simply refers to the future and options which are the derivatives for trading that allow you to speculate on pre-existing values of the underlying assets like gold, stocks, bonds etc. For a thorough understanding, let us discuss the future and options in depth.
Futures are agreements to sell or buy an asset, including stocks, and commodities at a specific fixed price and date known as the future price in the future. The selling process takes place when the buyer and the seller agree on the underlying prices and assets. Take a look at the types of futures.
Commodity futures contracts involve the trading of physical assets such as gold, oil and more.
As the name suggests, currency features include the trading of currencies, such as US dollars, the euro, and the other countries currencies.
Interest rate futures consist of the pre-existing assets included with the regular interests. The interest rate is discussed with both parties and gets finalized when approved.
Stock futures are the underlying assets that allow you to sell and buy stocks at the pre-designed price and the confirmed date in the future is mandatory.
Options contracts give the owner the right without any obligations to buy or sell the assets at their maximum price within a specific period. Unlike the futures, options allow the flexibility and the full rights to buy or sell the underlying assets. But, on the other hand, option contracts come with an expiration date that makes them invalid following the end of their validity. Check out the types of options.
The call option type allows the individual to purchase the underlying asset at its highest price before the expiration date. For instance, it is the process of buying a bar of gold at the fixed date price on the other day, regardless of whether the price increases on the other or not.
The put options allow the holder to sell the underlying asset at the maximum of its value before the expiration date, with no requirement to fulfil the contract. For instance, it is the same as selling your old mobile phone at a guaranteed price, regardless of its then-market value.
The trading and stock market is known to be difficult for beginners in the field due to its volatile market and the price fluctuations nature. So before enrolling on the future and options trading, gain valuable insights into who should invest in them.
Hedgers are the few individuals that enrol themselves in the future and options contract to reduce the investment volatility, including the price movements. Ahead of this, the investors can settle on the locked price for the future transaction to ensure the relative gains regardless of the market fluctuations.
Let us understand with the help of the imaginary situation that includes that a farmer locking the price for 100 kg of potatoes for Rs 20 per kg for the next three months. So if there are any ups and downs in the price after the time, the farmer will have its position fixed.
The speculators research and observe the market insights, trends, and ongoing prices depending upon the economic conditions and extract the profits and losses to make an informed decision for the future.
For example, an investor can make a short purchase in the derivative market to sell it soon after when he/she meets the predicted price events.
Arbitrageurs are highly professional and have the goal of gaining profits from the price differences due to the imperfections and upcoming events of the markets. These individuals study the price differences in the stocks and hop on the process of buying the undervalued shares on one exchange and vice versa, selling the overpriced on another by taking high volatile risks of the market.
In a nutshell, futures and options are the derivative contracts of the market that deal with the underlying assets they hold. Meanwhile, both have them carry a huge financial risk associated with them, as there can be no true predictions can be made of the volatile trading market.
So before you embark on the journey of trading, make sure to explore the ins and outs of the market to prevent the huge financial pitfalls and risks.
