We trade all the time, sometimes money for goods or services for money. Trading is an integral part of our life. Trading accounts are just like any normal bank account. The only twist is that it’s used for buying or selling assets. Assets are what we call “Things that can be measured by money”. Meanwhile, assets can be either physical or tangible which means we can see and touch them, or virtual aka intangible assets. Which refers to what we couldn't see or touch. In this section, we will discuss Intangible assets like stocks and bonds. Trading accounts range from simple cash to equity and derivative accounts. Like other ones, this one is about the future and options.
What are Futures and Options anyway?
Buying or purchasing stock in the future is obvious. This works on a contractual basis. Engage in a trading contract where you will purchase something like Amazon stocks in the next 5 years. Sounds like some fixed deposits right? The only twist is that you don’t have to pay in advance. Let’s learn various ways you can achieve success with this method.
1). Research:-
Yes, this is the very first thing anyone should do before investing. An appropriate research process and a final decision based on the verdict can minimize the risk of loss. For example stocks of big brands are extremely difficult to get but have a steady growth per year. Well, that doesn’t mean they can’t crash, and that's what makes everyone nervous. In the last 20 years, land, rare minerals, such as gold and diamonds, and petroleum stocks have risen dramatically. The foresight of the future is a must when it comes to trading futures and options.
2). Risk and failure:-
F&O trading is a very safe way to invest. This also means that 90% of the plan is worthless. In this plan, stock prices grow very slowly and steadily, and crashes in between can further lower growth. For example, the price of gold will not suddenly increase by 10 times when your plan expires. That would destroy the market and in the end, no one would buy gold anymore. Yes, that might be an advantage if your expiration date comes before the crash. If it's after then who knows, your loss might be greater than your investment. Most of the time the buyer does not need to worry about this.
3). Asymmetrical:-
This means only one party will suffer all the losses. In the above section, we discussed the fact that the Buyer does not own any risks since he bought the stock at a lower price. The seller sold a stock at 1000, and the price of the stock subsequently rose by 50%. Buyer still needs to pay 1000 while he could make 50% profit while selling.
4). Jokes on you:-
Well, it doesn’t mean you can act blindly. What if the price drops a lot in the future instead of rising? In that case, you are still paying the original price which is still higher. But can’t get a return while selling.
5). Bucket list:-
Another significant feature of F&O is that you can buy multiple shares altogether. There is no limit. This minimizes risk where even if one fails to charge a reasonable premium, others will fill the gap. Luck flows both ways now.
Conclusion:-
Basically, the main aim of this trade is freedom, which is attainable by paying a small initial amount upfront and a final payment after several years. This allows you to earn the due amount during that time. That’s why most people use it to buy bulk shares which suddenly drop in price just for you. Well, how should you know when that drop happens? Visit the 5paisa website and register your name. By subscribing to news and feeds, you will be reminded as soon as the fall occurs. Stay healthy and keep earning!
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