What are futures and options?

Futures and options represent two of the most common form of "Derivatives". The Stock Exchange decides the price for the derivatives. An example would be nice to illustrate. Many good companies in the stock market also have their futures and options contract. Not all companies have the same. Example: In Indian stock market SBI (State Bank of India) is traded in equities/cash, futures and options. You can buy/sell let us say 100 shares of SBI OR you can trade a futures contract. In a futures contract you will have SBI 1000 stocks grouped into 1 Future Lot. This means that if you trade at 350 and value becomes 351, with each difference in value you earn minimum 1000 INR. A future comprises of Price and Expiry. Meaning this 1000 futures lot will have a specific price and an expiry date (usually around end of every month). It is important to note that futures have to be traded in intraday only. Options:Options is the second form of derivative. They are of 2 types 1. CALL Option - You expect the stock price to increase 2. PUT Option - You expect the stock price to decrease Important part of the option's derivative is it's "Strike Price". As same with futures options also have an expiry date. Example: SBI stock is trading around 350. Now strike prices for various CALL and PUT options maybe 310, 320, 330, 340, 350, 360, 370, 380 etc. The prices for each strike price is different. If you buy a CALL Option with strike price of 350, then you will profit if the stock prices rises more than 350. Similarly if you buy a PUT option with strike price of 350, then you will profit if the stock price goes down below 350. Depending on the Volume (Volume means the total buyers and sellers interested in trading the stock) you can decide the best strike price at which you want to trade.