Frequently Asked Questions on Future and Options

Futures Trading can be defined as the act of trading a derivatives contract featuring underlying assets like shares, currencies, commodities, ETFs, etc. In Futures Trading, traders are obligated to buy or sell the underlying asset on a fixed, predetermined future date, at a fixed, predetermined future price on the contract expiration date. They are obligated to carry out the trade irrespective of the market value of the underlying asset on the trading date and may incur profits or losses accordingly.

In stock market, Futures and Options are derivatives contracts under which traders agree to buy and sell an underlying asset at a fixed date and time in future. A Futures contract is one under which the traders are obligated to buy or sell the underlying asset at a fixed future date, at a fixed future price, irrespective of the asset's market value on the contract expiration date. Under an options contract, traders have the option and not the obligation to honour the contract. This means they can bow out of the contract if the price of the underlying asset on the contract expiration date is not as expected/speculated. They must, however, forfeit the margin amount paid at the time of entering the contract.

The benefits of Futures trading include:

• Traders can leverage the margin trading benefit under which they can buy more units of the underlying asset at a fraction of a cost. This margin essentially serves as a security deposit to cover your losses if your trade does not perform to your expectations.
• You do not need to take the physical delivery of the assets traded and can conduct all trades on paper.
• The futures trading market is highly liquid and active, which means that at any given time, you can find buyers and sellers whenever you wish to conduct a transaction.
• The expense ratios, such as commission charges, entry/exit loads, etc., are typically low in the futures trading market.

The different types of futures contracts traded in India include:

• Equity stock futures
• Equity Index Futures like BSE Sensex, NSE Nifty 50, Nifty Bank, Nifty IT, etc.
• Currency Futures like USDINR Futures, GBPUSD Futures, etc.
• Commodity Futures
• Interest rate futures
• VIX Futures

You can check the NSE F&O stock list and eligibility criteria by visiting the website of the National Stock Exchange and following this path - Products & Services > Derivatives > Equity Derivatives > Products. Similarly, you can find the BSE F&O stock list and eligibility via the Bombay Stock Exchange website. Click on Markets on the BSE Home Page and select Derivatives to view the BSE F&O stock list. You can also find these details through your Mirae Asset Derivatives Trading account.