Derivatives Trading

What is a derivatives trading account?

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.

Futures and Options contract:

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 and Put:

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.