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Important Info

What are futures and options?

  • Options and futures are similar trading products that provide investors with the chance to make money and hedge current investments.

  • An option gives the buyer the right, but not the obligation, to buy (or sell) an asset at a specific price at any time during the life of the contract.

  • A futures contract gives the buyer the obligation to purchase a specific asset, and the seller to sell and deliver that asset at a specific future date unless the holder's position is closed prior to expiration.

What is the risk involved in futures and options?

Futures & Options (F&O) is a leveraged product inherently, what this means is that to buy Rs 2lk exposure to stocks/index, you will need only a small portion in your trading account - say for example 10% which is Rs 20000. The issue with trading with leverage is that, you can make and lose money quite fast.
Leverage also effects psycologically, because a person is buying for Rs 2lks with only Rs 20,000, he is scared, and typical reaction would be to book profit very fast and if there is a loss panic and do nothing causing a big dent to the trading account.
That said, F&O has a lot of +'s, ability to make money when markets are going down, abillity to take arbitrage strategies, and so on. If you are starting trading F&O, most important thing is to start trading with only the money you can afford to lose .

Having the right mindset.

  • Overall investor sentiment frequently drives market performance in directions that are at odds with the fundamentals.

  • The successful investor controls fear and greed, the two human emotions that drive that sentiment.

  • Understanding this can give you the discipline and objectivity needed to take advantage of others' emotions.

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