The Bombay stock exchange (BSE) is the oldest stock exchange  in India. It was established in 1875 under a banyan tree by five stock brokers. Currently 10,000 shares are listed on  Bombay stock exchange.

NSE

The National stock exchange (NSE) was established after the Harshad Mehta Scam in 1992. It is a leading stock exchange in India and fourth largest in the world. Over 1,800 stocks are listed on National stock exchange.

Nifty or Nifty 50

Nifty 50 is a basket or collection of the 50 largest most active stocks listed on NSE. It helps investors gauge the overall market sentiments. The term Nifty 50 is a combination of National Stock Exchange.

Sensex or Sensex 30

Sensex is BSE’s flagship index. It is a basket of 30 biggest, most actively traded stocks listed on the Bombay stock exchange. The term Sensex is a combination of sensitivity index.

Demat Account

Demat or Demat Account is an electronic account which holds financial assets like shares, mutual funds, ETFs, bonds, sovereign gold bonds, ULIPs etc. in digital form.  A demat account is opened with a broker like Zerodha, upstox, Groww, angle one , icici direct, etc.

Portfolio

A collection of investments owned by the investor is called portfolio. An investor may have just one stock or multiple securities in a portfolio. It contains a diverse range of financial instruments like shares, bonds, futures, options, etc.

Derivative

A derivative is a financial instrument that derives its value from  the underlying asset or group of assets. Futures and options are examples of derivatives. Usually, underlying assets are market indexes, shares, commodities, currencies.

Futures

Futures are financial contracts  to buy or sell an asset at an agreed-upon future date at a predetermined price. They are often used to protect against price fluctuation of the underlying asset or help prevent or minimise losses from unfavourable price movements. It can also be used as a leveraged to speculate on the price movement of the underlying asset and profiteer from it.

Futures contract are traded in lot sizes having different expiry dates and set prices that are known to the investor at the time of the contract itself. There are many types of futures contracts, such as commodity futures, stock futures, currency futures, etc.

Options

Options are financial contracts that provide the buyer the right but not the obligation to buy or sell the underlying asset at a predetermined price on or before the maturity date. Options are traded in lots. The specified price is known as the strike price. The amount paid in exchange for acquiring the right to buy or sell the underlying asset is known as option premium. In case the buyer does not exercise this right, his loss is limited to the option premium, he has paid. In case of the seller, the potential losses that can be incurred by him are limitless; however, the profit is limited to the option premium paid by the buyer in case the buyer refuses to exercise his right. There are two types of options: Call options and Put options.

Call Option

A call option gives the buyer the right but not the obligation to buy an underlying asset at the strike price on or before the expiry date. The buyer of a call option speculates that the market is bullish, and the prices of the underlying asset will increase. If at the expiry date, the price of the underlying asset is below the strike price, the buyer refuses to exercise his right. His loss is limited to the premium paid. If the price of the underlying asset is above the strike price, the profit is the current stock price minus the strike price, multiplied by the lot size, with the premium deducted as a cost of the call option.

Put Option

A Put option gives the buyer the right but not the obligation to sell an underlying asset at the strike price on or before the maturity date. The buyer of the put option expects the price of the underlying asset to go down. If the price of the underlying asset is below the strike price, the gain is the difference between the strike price and current price of the stock, multiplied by the lot size. In case the strike price is above the stock price, the buyer loses the premium paid.

Open Interest

Open interest refers to the total number of outstanding derivative contracts that are yet to be settled. From the time the buyer and seller initiate the contract until the counter-party closes it, the contract is termed to be open. Open-interest provides an accurate picture of the derivatives trading activity and whether the money rolling in the derivative market is rising or declining.

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