In the last post, we have discussed how you can protect yourself through derivatives. In this post, we will throw some light on what are futures and options…

What are Futures?

A stock future or futures contracts are an agreement between buyers and sellers to buy or sell an underlying asset for a future date at an agreed price.

Why are futures contracts beneficial?

1. They are providing high leverage.
2. You can trade with less capital.
3. It can be a very effective tool to reduce risk.

Options on the other hand …

An options contract offers the right to buy or sell an underlying asset depending on the positions they hold. It differs from futures contracts in a way that holders are not bound to buy or sell if they choose not to.

There are 2 kinds of options available.

1. Call options: it allows the holder to buy the asset at a predetermined price within a stipulated time frame.
2. Put Options: It allows the holder right to sell the asset at a predetermined price within a stipulated time frame.

How are options contracts beneficial?

1. It is Cost-efficient.
2. It can also be less risky if used properly
3. With less capital, it can provide higher returns.

Contrary to popular belief,

 Options trading is a good way to reduce risk…If you know how to trade options. Trading in options is not gambling, but in fact, a way to reduce your risk.

Is it better to trade stocks or options? write that in the comment section below …

 Happy Investing!