Futures and options (F&O) can be identified as particular types of derivatives that depend on the base instruments that are shares or commodities, etc. These are more complex contracts where two parties decide to fix the price of the asset at which the asset will be bought or sold on an agreed date in the future hence enabling market risk to be hedged.
What is F&O trading?
F&O trading is a speculative trading technique where an investor buys or sells an instrument at an agreed price in the belief that the price will change. An increase in the price has a positive effect on those individuals holding a buy strategy while decrease is positive to those holding a sell strategy.
Futures traders have to hold at least a certain percentage of the future value of the item with the broker in what has been described as margin. However, in the case of the buying of an options contract, one has to pay a premium for the contract. Thus the interplay of the contracts and the markets movement is the key to trading strategies in F&O.
