Page 141 - DCOM510_FINANCIAL_DERIVATIVES

Financial Derivatives Rupesh Roshan Singh, Lovely Professional University

Notes Unit 9: Trading Futures and Option

CONTENTS
Objectives

Introduction
9.1 Futures and Options Trading System
9.1.1 Entities in the Trading System
9.1.2 Types of Traders
9.1.3 How Trader’s Trade

9.1.4 Basis of Trading
9.2 Corporate Hierarchy
9.2.1 Client Broker Relationship in Derivative Segment
9.3 Order types and Conditions

9.4 Summary
9.5 Keywords
9.6 Review Questions
9.7 Further Readings

Objectives

After studying this unit, you should be able to:

 Discuss the futures and options trading system;
 Explain the types of traders in trading;
 Describe corporate hierarchy in trading;

 Describe the order types and conditions in trading.
Introduction

In the previous unit, you have studied about the pay-off for options derivatives contracts and
use of options. We also discussed about the simple strategies of hedging, speculation and arbitrage
in options like index options, stock options. This unit will helps you to understand the trading
system of futures and options contracts. We will also learn the various types of traders. The
various sections and sub section of this unit will also explain the entities in the trading system,
basis of trading, corporate hierarchy and client broker relationship in derivative segment.
Further, we will end up the unit with order types and conditions in trading system. To make the
learning easier, we will take the help of globally recognised best practices.

A future trading is an important economic activity for the development of an economy. Being
the first form of derivatives trading, it is a specialised field which requires professional expertise
and adequate knowledge in this area. To be a successful market operator (as a speculator,
arbitrageur, trader, investor or hedger) one must have adequate information and proper
understanding of the functioning of the futures markets. These are essential to make evaluation
of derivatives products in terms of their prices and values so that the market participants can
select them as per their objectives.

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