Numerous ways to invest your money prevail today, and from the good old stocks and shares to mutual fund and IPOs, there are many ways to invest in the stock market. More than any other asset class, stocks lead the pack where the most investment takes place today. You can tell this by the recent windfall experienced by Indian stock exchanges, earning them a prestigious position among globally recognised stock exchanges. A way to invest wealth that is gradually gaining popularity is investing in futures and options through trading. When you trade in futures and options, you actually trade in derivatives of stocks, commodities or any other underlying asset. Futures and options are a kind of contract that is signed between dual parties for the purpose of trading a share, commodity, etc, at a particular price (or a specific level) at a given future time.
In futures and options derivatives trading, the price of the trade is specified. Therefore, twin derivatives keep the investor secure against potential fluctuations that may occur in the markets. You may think that futures and options trading is a slow activity, but in current times, it is a fast-paced experience when you actually trade. While you may choose a brokerage through which to invest in futures and options, it is always good to know how futures and options work and function before you invest. An equity trading account may have to be opened as a first step to trade in futures and options. This can be conveniently undertaken at a famous brokerage like Motilal Oswal. However, as easy as this is, you may want to know the basics about it first.
When you clearly understand that futures and options are really tools which investors use to trade in the marketplace, you may get a grip on why they may be profitable. Financial contracts that derive value from any underlying assets are known as futures and options derivatives. Therefore, as financial contracts that take place with a buyer and a seller of an underlying asset, they are called futures and options derivatives of stock trading. The idea behind derivatives trading is to form a hedge against risks and gain significant earnings due to volatile prices by nominal margins payments. When you want to execute such trading in terms of contracts to purchase or sell, you need a trading account, a derivatives trading account. You can open a trading account with any good brokerage firm, like Motilal Oswal, for example, and this may be linked to a free Demat account. You may not need to have a Demat account for futures and options trading as contracts are valid merely up to the date of their expiry. So, although there are underlying assets involved, these are being bought and sold according to the terms of a contract. An online trading account suffices to deal in futures and options.
An F & O trading account is a required aspect of trading in futures and options. Here are some of the main reasons why:
Although futures and options are essentially derivatives of underlying asset classes, they are not alike. The primary difference is that an option represents a right (NOT an obligation) to purchase/sell any underlying asset, at a predetermined price. On the other hand, a futures contract is an obligation on the buyer’s and seller’s part, to execute trades at pre decided prices on a date that is mutually agreed upon. In an example of a futures trading contract, for instance, you may buy a month of equity contracts of a certain company through a futures contract at Rs. 500 a share. When the contract expires, the share price may be at Rs. 550 a share. You wind up making a gainful profit.
An equity trading account or a derivatives trading account is necessary to indulge in F & O trading. Your trading becomes a hassle-free process as you can carry out trades from anywhere with online trading accounts. This is a clear benefit to investors, but trading in F & O offers investors more pros than cons, and these main ones are expressed below:
Now that you have understood F & O trading to some degree, you may want to explore this very lucrative channel of investment further. You can do this by visiting the Motilal Oswal website, or better still, download the MO Investor app that gives you all the knowledge you need. This is a one-stop brokerage to manage your investments online with the click of a switch. Moreover, you can open an equity trading account online and start off right away. Before this, however, check out the advantages you get by transacting with Motilal Oswal: