Derivatives are financial instruments whose price is derived from price of an underlying asset. The underlying asset can be a commodity (oil, silver, agro-products etc.) or any other asset class (shares, bonds, stock market indices, interest rates etc.)
The 2 broad categories of derivatives are Futures and Options (F&O).
A Future is a legally binding contract In between a buyer and a seller. Here, the buyer agrees to purchase a specified quantity of the underlying asset at a predetermined cost and date while, the seller agrees to deliver the same at the same predetermined cost and date.
An Option gives the buyer the right, but not an obligation, to buy (call) or sell (put), a specified quantity of an underlying asset at a predetermined cost, in between 2 specified dates. Upon payment of an investment amount (the premium) by the investor (or buyer), the seller grants the option to the buyer.
Futures and options are available for investment and trading in the stock markets. This asset classes of investment can be risky if not carried out with proper speculation.
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