What is options and futures trading
The market for options on futures is structured in very much the same manner. A futures exchange is a meeting place where futures contracts are bought and sold. Trading occurs against a background of regulatory surveliance and guidelines from the exchange itself and from the Commodity Futures Trading Commission CFTC. Each exchange has its own list of products that it trades, and each product is traded in a designated futures trading pit. A trading pit is an area of floor, usually round with concentric steps leading down into the center.
The trading pits are each divided into a number of sections designated for trading in particular contract months. No trading may occur outside a contract's assigned pit, nor is trading permitted at any time other than during those hours which have been designated by the exchange.
Some exchanges also use automated trading facilities or computer networks which serve as trading pits. In addition to providing the market place for trading futures and regulating trading within its pits, futures exchanges also design and specify their futures contracts. Futures contracts are very specific in terms of the quality and quantity of goods underlying the contract.
You may have wondered who determines these specifications. The answer is the futures exchange. Working with participants in the industry such as traders, fund managers and natural hedgers, a futures exchange designs a contract to meet the greatest need. If the exchange succeeds, it will have designed a futures product that many players can use or trade, and volume in the futures will grow.
Contract specifications can sometimes be changed by the exchange, and is usually done to keep the contract viable. To stand in a trading pit, a trader needs to buy an exchange membership, pay annual dues, and register with various regulatory agencies. Naturally, few people would trade futures if it required that they stand in the trading pit. To solve this problem, in steps the futures broker.
A futures broker acts as a communication link between the trading pit and the trader, taking orders from the customer, and executing them in the futures pit. The article explains how a trader can employ futures contract to financially profit from his directional view on a stock or an index. Practical examples are used to illustrate how the trade would evol.. This chapter discusses leverage, the central theme of futures trading in detail.
The contract between futures and spot market is discussed. The chapter also touches upon leverage calculation. This chapter gives you all the necessary information that you need to know before placing your first futures trade. The chapter also throws light into why brokers and exchanges charge margins. This chapter gives you an overview of how to use a margin calculator.
In addition the chapter also touches upon spread trading such as calendar spreads. The chapter explains all that you need about shorting, be it futures or stocks with practical real life examples.
Emphasis is also made on things you need to take care of when you short stocks or futu.. This chapter is a primer on trading Nifty Futures. All that you need to know about Nifty futures is discussed in this chapter including the impact cost, liquidity, and benefits of trading Nifty future.. This chapter is a primer on how future contracts are priced with respect to the spot prices. The chapter also discusses the concept of premium, discount, and the convergence of futures and spot price..
This chapter gives a step by step instruction on how to hedge a portfolio of stocks with the help of a futures instrument.