Derivatives derive their values from the underlying assets such as equity, bonds, commodities, or currency.Derivative Futures and Options trading requires a trading account as you cannot trade derivatives directly without a dedicated trading account. Trading in derivatives helps you in hedging the fluctuation and volatility in the price by paying margins.
You can avail Futures or options contracts to trade in derivatives by paying a minimum margin.
Let us assume you choose to sell a company’s stock at Rs.500 on the contracted date and create a Futures contract. On the contracted date if the price of the stocks goes to Rs.450, your contract will be executed on the contracted price leaving a profit.
Let us assume you choose an option contract on the same stock at the same price by paying a premium. On the contracted date, you can choose to either execute the order or not with the margin price paid while creating the contract.
Call option is when you buy a stock, expecting its price to hit high in a certain time frame. Put option is when you buy the stock, expecting the price to hit low.
How to open a derivative trading account with Flattrade: