Share market is one of the most desired money making platforms that everyday deals in bunches of profit and loss by purchasing and selling of the securities. It also provides necessary liquidity flow that meets with the long-term financial needs of the business. To make out the profit and being safe away from the fear of loss, a person should have the selection of the correct type of securities that includes equity, commodities, future and options.
Many times future and options both terms are considered to be similar but it serves different in terms of profits and liabilities. The both terms are important at their own way and widely used as hedging instruments but they do have a major difference which can be included in the well diverse portfolio.
The future equities are obligations and standardized contracts under which an agreement is signed between seller and buyer for the underlying asset, instrument or financial commodity upon on fixed price. It is a linear equity that affects the percentage of loss and profit with the single fluctuation of price movement. However, the deal can be closed before the time of maturity by entering into squaring off (equal and opposite transaction).
In contradiction, an option is a non-linear instrument which is an act if right, not an obligation. In this, the buyer and seller agreed on the deal at a strike price at which two parties agree to sell or buy the assets in the future. The two types of options are put option and call options. This allows traders to make the profit when underlying financial commodity either goes up or down or at any time.
In call options, buyers are allowed to buy the underlying stock at a fixed price although if it rallies in the future. This ensures making of profit from a rally for a small price even without purchasing the underlying asset. The put options are rarely used for the buying, used as a tool to capture the value as the underlying stocks drop and then the put options are sold at a profit. In option, the loss possible is the amount of the premium paid. So, the options trading are safer and also possess less risk for the beginners.
Although, many experts love the future equity as it has its own advantages like no day trading limit, no wash sales penalties, trading 24 hours, tax advantage up to 60%. Future and option are important segments of the stock market under which we can buy or sell the securities without owning the same.
For gain more about Future and option visit Indira Trade a Share Brokerage Firm in India.