Business

Basics of Options and Commodity Trading

There are two types of future securities in Indian stock market that you can try out as a stock trader and they include options and commodities.

Let us check out fundamentals of commodity futures to understand them better.

Basics of Options

Options trading refer to the trading in stocks by speculating their future value.

Let us look into a simple instance for the same. Say you wish to buy 100 shares costing ₹50 each and are required to pay the broker ₹5000 for it. You currently have only ₹1000 with you that you give the trader as advance. Now in the one-month window you find out that the shares have gone up by ₹20 per share and now cost ₹70 a share. This is great for you as you only have to pay the trader the agreed value of ₹5000 (now ₹4000) for the share and when you sell it you make a profit of ₹2000.

The trader can only sell at agreed price, it cannot ask for more than decided value. But now suppose the share value goes down to ₹30 in one month period. You will obviously incur a loss of ₹2000 from the transaction. But, what you can do is, refuse to pay the difference but do away with the ₹1000 that you paid as advance for it. That way, you save your ₹1000 from going to waste. That freedom to not buy the stock is your “options trading”. This type can give your good returns if you understand which shares to buy and which stocks to avoid.

The right to purchase asset within the given time frame is known as the call option. The opposite of this is the put option, which is the right to sell the asset within the period of time. Here, the individual wants the value to drop within a time frame.

Commodities Trading Basics

Commodities trading is same as options trading. It is the trade of specific assets, usually commodities. Commodities refer to daily items that are consumed by the people but here in the market they are traded, they are priced for buying and selling transactions. If you get it right, then you will make a profit off of it but if you get it wrong then you will make a loss. If you do not abide then the deal gets cancelled.

Commodity online trading in India  include cotton, sugar, rice, coffee, tea, potatoes, onions etc. They are traded in the Indian units of kilograms or quintals. These are part of the agriculture trading. You have to follow the trends on these to know if they will rise or drop in price over the course of time. Say for example there have been sudden unexpected rains and the crops are almost destroyed, before this affects the values of the options you have to quickly sell it off if you are still holding them or take decision to not buy any new stocks. Metals are also traded in a similar fashion. These include iron, lead, nickel etc. They will also show improvement or decline in price during business hours of the day.

You can download online trading app here and start trading from today.

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