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Futures and Options Lot Size in the Derivative Market

Futures and Options Lot Size in the Derivative Market

Everyone those who eager to invest in the financial market, enter the market with high hopes of maximum return. The market has various segments with different investment options. Like the equity market, commodity market, there is derivates market too. Derivate market stands on underlying variables. Basically, it’s a derived form of underlying assets, the assets can be equity, interest rates, currencies, commodities. Today, in this article, the focus point would be Future and Options under the Derivative market. You may go through our previous articles on Future Derivative. Let’s begin with the basics, then we will cover Futures and Options Lot Size along with NSE details.

Suppose, ABC is a farmer and XYZ is a buyer. The farmer decides to sell his corp at Rs. 1000 to the XYZ buyer after 1 month. The buyer also agrees to his condition. Therefore, they enter into a contractual agreement that after 1month whatever the value of the corp will be, the buyer will buy the corp at Rs.1000. Now, if the corp value will increase to Rs. 1200, XYZ buyer will make the profit by Rs. 200 but if the opposite happens, the value will reduce to Rs. 800, the ABC farmer will make a profit in this case. The same thing happens in the Future and Options market too.

What is Future and Options Derivatives?

Future Contract-

The name of the contract itself defines its meaning. This type of contract will execute in the future. Like any other contract, it also has four factors like buyers, sellers, price and, expiry. The contract or agreement happens between buyers and sellers to buy or sell a specific asset at a specific future date and price. In other words, the asset price and execution date are prefixed here. If on or before the particular date, the price of the asset becomes high, buyers take the profit and if it becomes low, sellers book ta profit. The futures contract was basically introduced to hedge against changes in the prices of farmers’ crops.

Option Contract-

The basic principle of the future and the options contract is almost the same. Here, also a contract is listed between buyers and sellers at a prefixed price and date. Obviously, there is some basic distinction between the two. In future contract, both buyers and sellers have the obligations but in options, only sellers have the obligation while buyers have the right to buy it. Unlike future trading, investors can’t carry forward the position in the options contract. Future trading require a huge amount of principle while in options, buyers only have to pay the premium.

What is Meant by Futures and Options Lot Size?

Unlike equity and commodity, future-options investors can’t trade as per their requirement. If they enter into the Future-Options derivative market, they are bound to trade on the pre-determined number of securities, refers to Lot Size. In simple words, Lot size refers to the quantity of an item or security. In the derivative market, investors buy a contract with pre-determined lot size, depending upon the underlying securities.

For example

, if someone wants to but SBIN SEP FUT (State Bank of India September Future contract) one lot, he has to buy 3000 future shares. This means one can’t have to buy a minimum of 3000 shares under a lot. The same thing is applicable to the options contract also.

In NSE (National Stock Exchange of India) you can get each and every detail of listed underlying securities of the Future-Options trading. You also get the futures and options lot size along with the last traded price.

A screenshot of 25 underlying securities lot size is attached below:

futures and options lot size

One thing should be clear to you that futures and options lot size remains the same. In Future-Options, intraday and delivery both the trading system are available. You can buy and sell securities within a day. If you want to know further regarding intraday and delivery trading, you can check our article on intraday vs delivery trading.

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