In this article, we’ll show you how to track price changes and trends in financial markets. You’ll learn about different types of data series, the tools, and techniques that analysts use to visualize and describe the price movements in such series, the rules or pattern recognition methods that analysts use to examine these series and detect possible trends, as well as how to calculate the risk involved in trading on such trends.
Future And Options In Share Market: Investors who deal in commodities and stocks can protect against losses and make profits by using derivatives such as futures and options. This course gives a comprehensive introduction to derivatives. It starts off with the basics of what a derivative is, then moves on to more advanced topics like the mechanics of derivatives, hedging, futures, and options trading.
What are futures?
Futures are a type of derivative that allows you to trade a certain quantity of a particular asset at a specific price on a future date. To understand futures let’s use an example. Let’s say you have bought a futures contract to buy 100 shares at Rs 50 each of Company ABC at a specific date. At the expiry of the contract, you will get those shares are Rs 50, irrespective of the current prevailing price. If the share price goes up to Rs 60, even if it means making a neat profit of Rs 1,000. If the share price falls to Rs 40, however, you will still have to buy them at Rs 50 each so you end up losing Rs 1,000! Stocks aren’t the only asset in which futures are available. You can get futures contracts for agricultural commodities, petroleum, gold, currency, etc.,
Protect your business from the impact of price fluctuations. If you are a farmer, you can safeguard the value of your product by locking in the cost of a futures contract. The same goes for if you are an importer. Lock in the price now at which you buy oil so that you aren’t affected by price rises in the future.
What are the Options?
Derivatives come in different forms. One type is the futures contract. This is an agreement between two people to buy or sell one specific asset at a pre-determined price at a set date. Another kind of derivative is the options contract. This is a little different from a futures contract in that it gives a buyer (or seller) the right, but not the obligation, to buy (or sell) a particular asset at a certain price at a specific pre-determined date.
A call option is a contract that gives the buyer the right, but not the obligation, to buy a particular asset at a specified price on a specific date. Let’s say you have purchased a call option on 100 shares of Company ABC and decide not to go through the contract because you will be making losses. You then have the right not to buy the shares. Hence instead of losing Rs 1,000 on the deal, your only losses will be the premium paid.
What is future and option trading?
One advantage of futures and options is that you can profit from what are known as paper profits, where you do not take actual possession of the asset. E.g. while you may not be interested in purchasing gold per se, you can still take advantage of price fluctuations in the commodity by investing in gold futures and options. You will need much less capital to profit from these changes.
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