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The recommendations made herein do not constitute an offer to sell or a solicitation to buy any of herein will be profitable or that they will not result in losses. Readers using the information contained herein are solely responsible for their actions. Information is obtained from sources deemed to be reliable but is not guaranteed as to accuracy and completeness. The above recommendations are based on the theory of Technical Analysis and do not reflect the fundamental validity of the Scrip.
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Learning for Normal Investor :
In stock market, F&O represent the future and option market of derivative segment. Derivative are the financial instrument whose value is derived from underlying asset and it is most popular in India.
A futures contract allows you to buy or sell an underlying stock or index at a preset price for delivery on a future date. … A call option gives a buyer the right to purchase an underlying stock or index at a preset price during a contract’s liquid life — a month or also week in case of Bank Nifty.In other words….A futures is a right and an obligation to buy or sell an underlying stock (or other assets) at a predetermined price and deliverable at a predetermined time. Options are a right without an obligation to buy or sell equity or index. A call option is a right to buy while a put option is a right to sell.
Some shares also have futures and options contracts available. They are available in lots. Futures are contracts with a certain expiry date. You are basically betting that the price of the share will be higher than the price at which you bought it on the expiry date.
Options are even more complicated. You don’t get any shares or dividends if you trade in F&O. The risks are very much higher.
Futures and Options (F&O) are two types of derivatives available for the trading in India stock markets.
In futures trading, trader takes the buy/sell positions in an index (i.e. NIFTY) or a stock (i.e. Reliance) contract. If, during the course of the contract life, the price moves in traders favor (rises in case you have a buy position or falls in case you have a sell position), trader makes profit. In case the price movement is adverse, trader incurs losses.
Few fundamental things you should know about F&O trading:
The F&O segment accounts for most trading across stock exchanges in India. They are the most popular trading instruments worldwide.
To take the buy/sell position on index/stock futures, trader has to place certain % of order value as margin. Which mean if a trader buy future contract worth of Rs 4 Lakhs, he pays just around 10% cash to broker (known as margin money) which is Rs 40,000. This gives opportunity to trade more with little cash.
Profit or losses are calculated every day until trader sells the contract or it expires.
Margin money is calculated every day. Which means if the trader doesn’t have enough cash (margin money) in his account (on any day when trader is holding the position), he has to deposit the margin money to broker or broker can sell his F&O contract and recover the money.
Unlike stocks; derivative has an expiry. Which means if trader do not sell until a pre-decided expiry date, the contract is expired and profit or loss is shared with you by the broker.
Future Trading can be done on the indices (Nifty, Sensex etc). NIFTY Futures are among the most traded future contracts in India.
In the Futures and Options segment at NSE and BSE; trading is available in mainly two types of contracts:
Index Futures & Options
At NSE; Index F&O are available for 6 indices. This includes
CNX Nifty Index (based on the Nifty index.)
BANK Nifty Index (based on the BANK NIFTY index)
CNXIT Index (based on the CNX IT index)
Nifty Midcap 50 Index ( based on the Nifty Midcap 50 index)
CNX Infrastructure Index (based on the CNX Infrastructure index)
CNX PSE Index (based on the CNX PSE index)
Similar way BSE offers trading in future for underlying assets as following indexes:
Futures & Options on Individual Securities
Stock exchanges offer F&O contracts for individual scripts (i.e. Reliance, TCS etc.); which are traded in the Capital Market segment of the Exchange.
NSE offers F&O trading in 135 securities stipulated by the SEBI. The stock exchange defines the characteristics of the futures contract such as the underlying security, market lot, and the maturity date of the contract.
What is the difference between equity and futures?
When you invest in equities, the number of shares offered by a company is finite, until they decide to sell more on the market. … So, “buying and holding” is a common strategy for long-term equity investors. But with futures contracts, you agree to buy or sell a commodity at a future date.
What is CE and PE?
CE means call option,instead of buying a stock you can buy call option. PE means put option ,instead of selling a stock you can buy a put option.
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