Are you interested in futures and options and want a brief guide explaining its various aspects? Then, here’s one serving your needs. It talks about the various essential facets of futures and options trading, including what it is, the steps involved in it, and a few more technical concepts related to it. The guide can help you get a basic idea, although for a detailed explanation and to master futures and options trading, you can join our future and option trading classes in Pune.

What is Futures and Options Trading?

Also called F&O, futures, and options are financial trading that allows you to speculate on the future prices of stocks, commodities, currencies, and indices. So, instead of buying or selling the asset, you deal with it in contracts that derive their value from it. Let’s understand it through an example.

• Futures Example :

Let’s say you want to buy a February rice contract. You enter a futures contract to buy 100 kilos of rice at an agreed price by the end of February 2025. At this time, the market price doesn’t matter. On the other hand, the seller agrees to sell the 100 kilos of rice at the mutually agreed price. Both of you now have to buy or sell those 100 kilograms of rice, unless both deal with other buyers or sellers. Now, based on the price changes, the market would determine the profit or loss for buyers/sellers.

• Options Example :

Suppose you buy a futures contract at Rs. 1000 and some other trader sells those futures. If the price rises to Rs. 1100, you earn 100 rupees and the selling trader loses Rs. 100. Now, when the stock price falls to let’s say Rs. 900, you lose Rs. 100 and the seller gains Rs. 100. However, you have to pay a premium to avail of the right to make the purchase at the predefined price. For the buyer of the option, the premium can be the maximum loss.

Types of Futures and Options Contracts

Let’s now look at the types of futures and options contracts.

Futures Contracts

• Equity Futures: Contracts on individual stocks or equity indices such as the Nifty 50. With this type, you can speculate on stock price movements.
• Currency Futures: This involves trading various currency pairs, thus providing a way to hedge against risks associated with foreign exchange.
• Commodity Futures: As the name suggests, commodity futures include physical goods like agricultural products, gold, or oil. As a trader, you can use these contracts to speculate on price variations or hedge against price risks.
• Interest Rate Futures: These futures track interest rates, usually used to manage rate variation risks.

Options Contracts

• Put Options: In a put option, the holder has the right, but not the obligation to sell an underlying asset at a particular price within a set duration. These options are usually used when investors predict a fall in the asset’s price.

• Call Options: In a call option, the holder gets the right but not the obligation to purchase an underlying asset at a predetermined price (called the strike price) within a particular duration. Investors usually use call options when they anticipate a rise in the price of the underlying asset.

Important Futures and Options Tips and Points to Remember

Our best share trading classes in Pune cover every essential aspect of futures and options. However, here are some important tips and points to remember.

F&O transactions involve GST, stamp duty, brokerage fees, etc. All these costs are deducted from your profits. Hence, ensure you factor them in while calculating your returns and keep an optimal profit-to-transaction cost ratio.

• As a thumb rule, you must understand market trends and ensure comprehensive research.
• You must learn how to use tools that enable technical analysis and study various market indicators to forecast price movements.
• Work your futures and options trading with a reputed and registered broker.
• Decide the capital that you can allocate for futures and options.
• Trade with a clear trading strategy, whether arbitrage, hedging, or speculating.
• Monitor the market and align your strategy to adapt to changes.

Final Words

So, that was about some basic facets of futures and options trading. Perfecting it requires you to undergo formal training with the best future and option trading classes in Pune. eMS, one of the best share trading classes in Pune, serves that need. Our comprehensive courses, learner-centric approach, and abundant practical exposure let you learn different aspects of the stock market and trade more confidently. Call us at +91 95618 61818 to learn more about our courses.