FUTURES AND OPTIONS
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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?
- They are providing high leverage.
- You can trade with less capital.
- 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.
- Call options: it allows the holder to buy the asset at a predetermined price within a stipulated time frame.
- 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?
- It is Cost-efficient.
- It can also be less risky if used properly
- 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!