Futures and options are two types of derivatives that are traded in the share market. A derivative is a financial instrument that derives its value from an underlying asset, such as a stock, index, or commodity.
Futures:
A futures contract is an agreement to buy or sell an asset at a future date for a predetermined price. The buyer and seller agree to the terms of the contract, including the price, quantity, and delivery date. Futures contracts are traded on futures exchanges, and the price of the futures contract is determined by the supply and demand for that contract in the market.
Options:
An options contract gives the buyer the right, but not the obligation, to buy or sell an asset at a predetermined price on or before a specific date. Options contracts are traded on options exchanges, and the price of an options contract is determined by the supply and demand for that contract in the market.
Beginners should approach futures and options trading with caution, as these instruments are complex and can be risky. Before starting to trade in futures and options, it’s important to educate yourself about the basics of derivatives trading and the associated risks.
Here are some tips for beginners who want to start trading in futures and options:
1. Learn the basics: Start by learning the basics of futures and options trading, including the terminology used, how futures and options work, and the risks involved.
2. Educate yourself: There are many resources available to learn about futures and options trading, such as books, online courses, and seminars. Take advantage of these resources to educate yourself about trading strategies and risk management techniques.
3. Practice with a demo account: Many online trading platforms offer demo accounts that allow you to practice trading without risking real money. Use a demo account to practice your trading strategies and get comfortable with the trading platform.
4. Start small: Begin by trading with a small amount of money and gradually increase your investment as you gain experience and confidence.
5. Diversify your portfolio: As with any type of investment, it’s important to diversify your portfolio to minimize risk. This means investing in a variety of assets, including stocks, bonds, and commodities.
6. Use stop-loss orders: A stop-loss order is an order to sell a security when it reaches a certain price. Use stop-loss orders to limit your losses and protect your investment.
7. Stay disciplined: Stick to your trading plan and avoid making impulsive decisions based on emotions. Keep a level head and stay disciplined to increase your chances of success.