Futures and options are both derivative instruments traded on Indian exchanges like NSE and BSE, but they function differently.
A Futures contract is an agreement where both the buyer and the seller are obligated to complete the trade at a predetermined price on a future date.
For example, if you buy a Nifty 50 futures contract, you must buy the index at the agreed price on expiry, regardless of market conditions.
Since futures involve leverage, even small price movements can lead to significant gains or losses.
On the other hand, an Options contract gives the buyer the right, but not the obligation to execute the trade.
In India, there are two types of options-Call Options (to buy) and Put Options (to sell).
If you buy an option contract for a stock, you pay a premium for the right to trade at a fixed price.
However, if the market moves unfavorably, you can choose not to exercise the option, limiting your loss to the premium paid.
One key difference is margin requirements-futures require a higher margin, while options only require a premium for buyers. Additionally, options tend to attract more retail traders in India due to their limited risk and low upfront cost compared to futures.
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