Derivatives Trading- Few terms and their definitions.

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  1.  Options and future contracts: Derivatives whose price are determined by price of other securities .
  2. Forward contract: Money is exchanged only when goods are delivered / It is a deferred delivery sale of some asset in the future with the sale price agreed on now. This protects farmers if price fails.
  3. Futures contract: Agreement between two parties to buy or sell an asset at a certain time in future at a certain price
  4. Call option : It gives its holder the right to purchase an asset at a specified price on or before some specified price on or before some specified expiration date. The specified price is called strike price.
  5. Put option : It gives its holders the right to sell an asset at a specified price on or before some specified expiration date.
  6. Currency option: Buy or sell a quantity of foreign currency for a specified amount of domestic money

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