If you want to invest in the market with the facility of hedging, options trading will be the right choice as compared to future trading. Trading in the option gives you a chance to benefit from the share price without paying the full value of the share. By trading in the option or bank Nifty option, you can get limited control over the stock with much less money than the money required buying the stock completely.
Insurance covers security from fluctuations in security prices
Insurance cover of loss can also be charged by paying some premium during options trading. These insurance covers protect you from fluctuations in the prices of certain security. This is the same as when a car is insured by a scratch, a theft, or an accident. in simple terms, the option is a good option to compensate for the losses caused by price fluctuations.
In futures trading, you buy a lot of gold at the price of 30,000 rupees, but the price of gold breaks by rs. 1000 and comes down to 29,000 rupees. In such a situation, you have to lose one lakh rupees on a lot. On the other hand, if you have purchased the call option in options trading, the loss comes down to just rs. 5000 if you pay a premium of rs. 50 per ten grams.
The future market does not have a hedging tool i.e. leave the deal open or put a stop loss. when a stop loss is imposed, the deal is cut on its own at that level, but the damage does. If the stop loss is not imposed, the loss is more, while the put option can hedge the purchased deal. Similarly, sold deals can limit losses through call options.
Hedging is used to avoid such adverse conditions if prices invested in shares of a company suddenly fall during futures contracts in the stock market. This is done through counterbalancing i.e. in other words, hedging is done through investment in two investment options that have a negative correlation.
There are two types of options.
Call option: A call option is a contract that empowers the investor to buy calls in an asset at a fixed price within a certain time frame. The pre-fixed price is called the strike price, which is known as the expiry date. the call option allows you to buy 100 shares. You can sell call options at profit or loss before the contract expires. When an investor feels that a commodity should bet on a boom they can use this. It has to pay the premium, where the investor loses the maximum.
Put option: The put option is contrary to the call option, it gives the holder the right to buy shares. Put options give the holder the right to sell the underlying shares at the closing date or the strike price before that. When investors feel that the market is on the verge of a further slowdown they can use this. In this case, he either exits the market or buys more as per his requirement.
The first thing to do is to have a trading account to start options trading in the commodity market. If you already have an account in the futures market, your broker will have to give a memorandum of understanding for options trading.
It is through this account that investors can buy or sell a deal in the future or option on commodity exchanges. The same happens in Bank Nifty future and option trading. If you are opening a new account, you will have to fill a separate form for business in the option like future.
The broker through whom the trading account is being opened must be a member of the multi-commodity exchange and the national derivatives exchange. At the same time, the broker should be properly identified in the market.
Futures and options business properties and flaws
When you are learning about how to do business in the future and options, you should also know what you are going to do. Certainly, investing in futures and options has many advantages, such as effectiveness. But futures and options can also be risky. High impact ability enables you to take a bigger position, and if the market does not go in your favour, there will be huge losses.
So before trading take care of these things as much as possible.
