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Friday, 4 September 2015

Difference between options and futures

There are 2 types of derivative instruments in Indian stock markets.

  1. Options
  2. Futures
Options and futures allow you to trade in future for a pre-determined price. The difference between option and future is that in case of options, you do not have obligation to execute the trade while in case of futures you are obliged to execute the trade no matter you make profit or loss.

Example - If you think that stock price of RIL will go up in next few days, you buy the call option. If price goes up, you exercise the option and make profit. But if price goes down, you do not exercise the option thus avoiding the loss.

But in case of future, you will have to execute the trade no matter what the spot price is.



What do you think on this topic? Please express your opinion or ask any question through comment below. You can write to me at reply2sagar@gmail.com

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