Futures and options the common forms of derivatives

Futures And Options: The Common Forms of Derivatives These future and option are the two terms which represents the most important forms of derivatives. The derivatives are the instruments used in finance that gains value driven from an underlying. These underlying are the various things like the stock of a corporate, gold or currency. The derivatives are most common in the commodity market. Thus we can say that the future and options are analyzed mostly in commodity trading division and can be done independently of the assets. The derivative instrument value is totally dependent on the change of the underlying asset value. There are basically two types of derivatives namely Exchange traded and OTC better known as Over the Counter.

Future is known as the contract used for buying or selling the underlying asset products with a specific price at a pre assured time. All future contracts have four general features termed as Buyer, Seller, Price and Expiry. The most commonly used asset products on which one can get a future contract are indices, equity stocks, currency and commodity. One should make a note that sometimes a physical asset can fetch you more profit than the future contract.

Option can be termed as the instrumental contracts that give the privilege to the shareholder to either sell or buy the underlying asset at a predefined fixed cost. There are two factors to define option namely a call option or a put option. Call option is associated with buying and put option is the right of the buyer to sell the asset.

The future and option trading are the contracts that allow someone to buy or sell the underlying asset products at a predetermined specific time and price. Futures are related to predetermine time and options are related to predetermine price. Each and every future contract has four general features like buyer, seller, price and expiry. The future contracts are available on few common assets like currencies, stocks, indices and commodities. The options are basically the call option or put option which is associated with buying and selling respectively. The future and option trading is done by the skilled professionals and a lot of research works need to be done on the market conditions to manage these kind of trading business. These derivatives can be termed as the financial instruments that drive or gain their value from the underlying products which are basically the currencies of any nation, gold or the stocks or equities of any company.

Future and option trading can be done in two ways namely exchange trade and over the counter (OTC). As the name signifies the exchange trade is done or conducted through various exchanges across the globe and is quite similar to the share trading business. OTC (Over the counter) derivatives are not traded in exchanges instead these products are not standardized.

Irrespective of the risk involved in such trading business people are getting involved in it as there is a lot of scope to make huge profits and the trading is really interesting.