Sunday, 13 March 2011

Options trading and futures trading

Stock trading and commodity trading are best ways to make money easily. It is not a quick rich program. But an experienced person can make a lot of money from these trades. Futures trading and options trading are two methods in commodity market to make money. The buyer and seller enter into an agreement regarding a transaction of commodities or securities (derivatives) will be settled in a future date with an agreed price. It may be stocks, precious metals, currency or any other commodities. But there will be an agreement that the transaction will be taken place in a particular future date with an agreed price.

In options contract, the buyer has an option to exercise the contract at maturity. He may refuse to exercise the transaction, but the seller is indebted to do the transaction if the buyer is ready to buy the security or commodity. He (the buyer) can make this transaction at any time before the maturity. But he can take decision about exercise the contract or not. But when they enter into the contract they have to agree a premium amount (an agreed amount) just like a token money and if the transaction in not taken place the buyer will lose the premium amount.

But in futures contract, the buyer and seller make a contract to buy and sell a commodity or security with an agreed price on maturity of the contract. Here both the buyer and seller have obligation to exercise the transaction on the maturity date. The seller will transfer the securities or commodities on maturity to the buyer at the agreed price. The buyer should not pay any amount at the time of contract, but the agreement is an enforceable agreement and the transaction must be taken place on maturity date.

Both the futures and options protect from the unexpected rise or fall in the price in a future date. Even though only an experienced person can make money from options and future trade. An inexperienced person can lose all his money in not time. So handle with care.

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