What are futures and options in stock market?
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In stock market, Futures and Options are derivatives contracts under which traders agree to buy and sell an underlying asset at a fixed date and time in future. A Futures contract is one under which the traders are obligated to buy or sell the underlying asset at a fixed future date, at a fixed future price, irrespective of the asset’s market value on the contract expiration date. Under an options contract, traders have the option and not the obligation to honour the contract. This means they can bow out of the contract if the price of the underlying asset on the contract expiration date is not as expected/speculated. They must, however, forfeit the margin amount paid at the time of entering the contract.
For example, if you buy a futures contract for 100 barrels of oil at ₹50 per barrel, you are obligated to buy the oil for ₹50 per barrel even if the market price of oil has risen to ₹60 per barrel by the expiration date. The opposite is true if you sell a futures contract
Futures and options are financial derivatives that allow traders to speculate on the price movements of an underlying asset without actually owning it.