Some people still think that stock trading is just buying of shares as when its price is going down and sell it when it is going up, but in today's era trading is not just like buying and selling of shares but its to trade and invest professionally most of the traders and investors are not fully aware about the different strategies they can follow to minimize or restrict your loss and to understand the purpose of different segments is most important like, if I want to work in a cash or future then I why should I go for that means the purpose and objective of investment strategies should be clear in our mind through which we can decide which is best according to my risk
Here are some segments
Future market: A future or derivative market is a market where different contract of underlying assets are traded that facilitate delivery of the underlying assets or final settlement of a contract on a future date that is the expiry of the contract.
There are mainly two types of derivatives are there first one
OTC: Means over the counter contract these are the contracts between two parties to deliver an underlying assets on a fixed future date in this kind of contract credit risk, operational risk (does the other party will deliver goods or not) has been always associated with that example: forward and swap contracts are the OTC contracts.
Exchange traded securities: These are the contracts that are traded over the organised exchange like NSE, BSE, MCX. In these types of contract credit risk and operational risk is absent. And exchange work as regulator between buyers and sellers. In NSE there are around 172 share and 10 indices are available in which different buyers and sellers can work in future and option contracts. These are the one month expiry contract whose main purpose is to reduce risk by hedging and arbitraging like just take an example
xyz LTD whose current price is around 250 in November futures and lots size is 1000 means if you purchase a single lot you are going to work on a 1000 shares and here you are making a contract that on or before the November contract expiry will buy 1000 shares by paying a full amount, at initial a buyer or a seller have to just pay a margin amount that is 18 to 22 % of total investment like
2500000*18 -22 %= 50000 approx would be the investment that a buyer and seller have to pay to exchange
In future and option contract expiry is the last Thursday the month it it is any public holiday then proceeding day would be the expiry date. Here NSE follow 3 month contract cycle for a derivative contract of individual stock. Hedging and arbitraging are the techniques that are mostly used in a derivative market or segment to reduce risk of price uncertainty. As most of the investors and traders make biggest mistake by working on it on positional basis due to this sometimes loss are also there. So it is better to work with proper understanding and on the basis of proper fundamental and technical analysis on which we focus.
Options are financial derivative instrument. A derivative is a contract whose value is derived from an underlying asset. if we are working in equity market, we generally use to buy or sell share’s of different companies. At the derivative market we buy and sell the contract whose value is derived from underlying asset i.e. share of different companies. Future and options are the types of derivatives. An options is a contract that gives you a right but not the obligation to buy or sell an underlying asset on fixed interval of a time at fixed specified price. There are two types of option 1st one is Call Option and another Put Option. call call option gives you a right to buy and put option gives you a right to sell but not the obligation. In option contract investment is less as compare to Stock Future and Equity Market because in option we just have to pay a premium amount which is very less as compared actual price of the share. for example if you want to buy 1000 share of SBIN and its valuation is around 280 for that the investment you required would be high but if you want to buy 280 call option of SBIN you just have to pay a premium that is very less as compare to equity.