Futures and options are contracts that derive their value from an underlying asset. These underlying assets can be equities, commodities, currencies, etc. The value of futures and options are directly correlated with the underlying, and the value of these derivatives fluctuates with fluctuation in the underlying price.
Traders trade in this market segment by anticipating the outcomes that may or may not proceed. Making sensible conjecture about the market requires traders to be cognizant of the aspects of the market. Predicting market outcomes is the most rational way to proceed with trading. And it allows traders to tackle the contingency of the market.
The underlying price may go up or down, and traders must be on the winning side to succeed. Some aspects of the associated segment allow traders to make reasonable anticipation about the things that may or may not occur in the market. With the same, traders can trade with futures or options to have a better experience or to hedge the losses. Traders may proceed to speculate better about the underlying with a better understanding.
Traders may buy and sell futures and options contracts with a predetermined rate and agreed-upon date. They may have a profit or loss with this trading method and must take every trade decision rationally. The buyer involved in a future trade buys the specified volume of the stocks at the specified price. And date drafted on the contract before the beginning of the trade. So, buyers and sellers receive the right to buy or sell a certain share at a predetermined price.
In an option contract, traders receive the right but not the obligation to purchase or sell the underlying on the specified date and time. There are two types of options: call options and put options. Call options are linearly correlated, and buying calls put a trader in a bullish position and selling calls put a trader in a bearish position. ‘Put’ options are different in this regard, and with selling, a trader is in a bullish position. Buying puts, however, marks traders’ bearish trading strategy.
Options are further classified on behalf of the strike price available for them. In-the-money, at-the-money, and out-of-the-money are three option types based on available strike prices.
A trader in bullish trade benefits from the rise in the price as per speculation made about trading. Moreover, traders in a bearish position benefit when the price of the asset falls as per their anticipation. Being bearish or bullish about trade is completely circumstantial and does not guarantee profits from trades placed in the market. So, traders must follow a trading strategy after going through the aspects of the market and their own risk.
Futures and options trading has pros and cons, and traders must consider them before trading. Traders can better understand this segment with the same. And it allows traders to tackle the uncertainties of the market associated with this segment.
Traders pay the premium to a seller in case they buy an option contract and receive the premium when selling it. So, the main reason for trading futures and options is to hedge against the price movement of the associated financial instrument. Despite their perks and benefits, the trader does not receive any ownership of associated trading instruments with futures and options trading.
A trader may extend the benefits of trading futures & options by going for direct market access. Direct market access allows traders to place trades in the exchanges’ order books directly. Traders thus receive a better trading infrastructure with the same and have a better system for placing the stakes in the market. By reasonably going for trading futures & options with direct market access, traders can extend their horizons and have a better trading gateway for placing orders in the market.