What are the Types of Futures and Options?
Before engaging in Futures and Option trading, it is important to know the different types of F&O available.
TYPES OF FUTURES CONTRACTS
The following are the types of Futures Contracts:
- Index Futures: Index Futures are contracts whose value is based on the performance of a stock index. Investors trade these contracts to speculate on the future direction of the overall market.
- Stock Futures: Stock Futures are agreements that enable the purchase or sale of a specific quantity of shares at a predetermined price on a specified date. Traders are obligated to adhere to the terms of the contract upon acquisition.
- Currency Futures: Currency futures, also referred to as foreign exchange futures, provide a means to buy or sell a specific amount of currency at a designated price and time.
- Commodity Futures: Commodity futures involve agreements for the delivery of a specified quantity of a commodity at a future date.
- Interest Rate Futures: Interest rate futures are contracts centered around an underlying asset that carries an interest component. These agreements facilitate the exchange of an interest-bearing asset at a predetermined price in the future.
TYPES OF OPTIONS CONTRACTS
There are two types of Options Contracts:
- Call Option: A Call Option gives traders the right to purchase the underlying financial security at a pre-determined price on the specified date. This provides an opportunity for investors to benefit from potential price appreciation.
- Put Option: A Put Option provides the holder the ability to sell the underlying financial security at the pre-determined price on the specified date. Put options can be valuable in situations where an investor anticipates a decline in the value of the asset.
Note: Options Contracts exist for Indices, Stocks, Currencies and Commodities.
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