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How does future and option trading work?
While futures act a liability on an investor, requiring him/her to follow up on a contract by a pre-set due date, an options contract gives an individual the right to do so. A futures contract to buy/sell underlying security has to be followed up on the predetermined date at a contractual price.
How do futures and options make money?
It is possible to be profitable in online trading for F&O if you get your basics right.
- Use F&O more as hedge than as a trade. This is the basic philosophy of how to trade in futures and options.
- Get the trade structure right; strike, premium, expiry, risk.
- Focus on trade management; stop loss, profit targets.
Is F&O safe?
It is fine as long as you are aware that the impact of leverage through margins works both ways; in case of profits and in case of losses. 2. Buying options means limited risk, but you rarely make money. Many small F&O traders prefer to buy options because your risk is limited to the premium paid.
What is the difference between futures and options?
The main fundamental difference between options and futures lies in the obligations they put on their buyers and sellers. An option gives the buyer the right, but not the obligation to buy (or sell) a certain asset at a specific price at any time during the life of the contract.
How do option differ from forward or futures contract?
The major difference between an option and forwards or futures is that the option holder has no obligation to trade, whereas both futures and forwards are legally binding agreements.
What are options on currency futures?
Options on Currency Futures. Instead of having an option to buy and sell currency pairs, an option on a currency future gives holders the right, but not obligation, to buy a futures contract on the currency pair. The strategy at play here is that the option buyer can benefit from the futures market without putting down any margin.
What is future vs option?
Futures vs. Options. The biggest difference between options and futures is that futures contracts require that the transaction specified by the contract must take place on the date specified. Options, on the other hand, give the buyer of the contract the right — but not the obligation — to execute the transaction.