Open Derivatives
F&O Account

Ans. Futures and Options both are derivative contracts based on an underlying asset’s value in future. The difference is, in a futures contract the buyer or seller has the right to buy or sell the security at a future date at the price specified in the contract, before the contract expires. In an options contract, the buyer or seller has the right but not the obligation to buy or sell the security at a future date at specified price in contract. Investors and traders use futures and options to cover risk as well as profit from price movement speculation. In a futures contract, the writer is required to pay a margin to the broker as a percentage of total futures quantity purchased. In an options contract, the writer needs to pay a premium while entering the contract. The risk factor is lower in an options contract, since the risk is limited to the premium paid by the options writer. The options contract gives a choice to the holder to not exercise the option in case the price movement is not as per expectation. The risk is higher in futures contracts as the holder has to take a call beforehand and exercise the contract on a specified date. What are the types of Futures & Options: Futures are of one type only without much variation in type of contract. Options contracts are of two types depending on the different views on future price on security: Call Option: Call Option gives the holder the right to buy the underlying security at specified price on or before the expiration date of the contract. Call option is written when the trader expects the price of asset to increase in the near future. Put Option: Put option gives the holder the option to sell the security at specific price on or before the contract export date. The options seller expects the price of security to fall in the near future.

Ans: The participants in derivatives market can be categorised on the basis of their trading behaviour: Hedgers: Hedgers are traders looking to de-risk their portfolios from unexpected prie movements. Hence they take the exact opposite position as their holding to hedge the risk from adverse price fluctuations. Speculators: Speculators are high risk takers who take speculative calls in the market to profit from the risk and price movements. They often take opposite position on price movements compared to hedgers, thus creating the market of buyers and sellers with opposing views.

Ans: You can furnish below documents as financial proof: Latest Income Tax Return Latest six month bank statement Salary slip Latest six month demat account statement

Ans: There can be a penalty levied in case there is margin shortfall in a futures trading account. The penalty is applied to positions with insufficient margins as a percentage of shortfall as per SEBI regulation.