24 October 2012
Futures and Options are part of derivatives market. Cash and derivatives markets are the terms which are used in the context of stock market; they both refer to trading of stocks. However they both are different, let’s look at some of the differences between cash and derivatives market –
1.In cash market, one can buy even one share of a company while in Futures and Optios (F&O)the person has to buy minimum lots fixed by the recognised stock exchange such as 20, 50 or 100 depending upon the market price of the stock
2.In Cash market people buy stocks for investment purpose while in F&O market people trade for hedging their positions, arbitrage or for speculation.
3. In a cash ,market you cannot trade on Index suxh as Nifty50 of Sensex whereas in F&O you can trade on Index futures and options
4. When you trade through cash market you are require to pay 100% of the transaction amount whereas in F&O its not so, you only need to pay the Margin (in case of futures) or premium (in case of options)
The price of the futures and options depends upon the movement of the price in the cash market
Futures and Options are much riskier than cash market. Even if the Market price of the stock falls you can still hold the stock till the date you want to hold but as far as F&O is concerned u have to square off the positions at the time of expiry which is the last thursday of every month.
There are other differences too b/w two of them but the above are some the basic differences. Hope you must have found it useful.
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