Before venturing into the domain of trading, it is vital for a trader to have a basic understanding of the fundamentals of the stock market. Prediction of the future is not an easy task as it requires wisdom, knowledge and creativity. Let us understand what a derivative is as the products deriving values from the spot value of a security. In futures, one agrees to buy or sell shares at a certain price on a future date, an option contract gives you a right and not an obligation in any form. Let us understand how to trade in the derivative market
- Undertake proper research- In the derivative market, it is fundamental that you conduct proper research. But you need to be aware that the strategies are different from the stock market. It is a form of trading that can be done in derivative contracts only. A trader has to exit the market before the expiry day, otherwise, the contract would be settled on its own before the expiry date. Hence it requires an accurate and time-bound view of the trading bet.
- The margin requisite amount is to be arranged- the contracts of the derivative are initiated by a small margin and traders would require extra money once the trade is known to fluctuate. Be aware that the change in the margin amount changes with the change in the value of the underlying stock. So, make sure that you are keeping extra money in your pocket.
- Trading account- This account is an identity in the market. You need to make sure that this account allows you to trade in derivatives. If this is not the case you need to get in touch with your broker and activate the account. The moment you do so you will be able to place an order online or interact on phone with a broker.
- Margin Maintenance- the stocks along with the contracts are to be selected on the basis of the amount that you have in your hand. Here the margin requirements, the price of the underlying stock along with the price of the contracts all oft hem hold an important value.
To conclude it is all about the choices that you need to make. The future along with options contracts do have its own risks and benefits. It may seem that options are a better choice, as there is a restriction of the losses to the amount of the premium that is paid. You need to be sure about the option before you go on to enter an option contract. The reason being most of them expire before their stipulated time frame. For expert guidance 5paisa can be the best platform to provide concise information and they have experts to guide you about the process.
Investing in derivatives requires a lot of money. So this is not for you if your funds are limited and the risk appetite is low. You need to be aware that derivatives trading carries a degree of risk along with it. Higher leverage is expected to provide you with a higher positions and if the market does not turn in your favour losses can be huge.
