Question:
What are the key differences between trading in a CM Segment and in Futures & Options (F and O) Segment?
What are the key differences between trading in a CM Segment and in Futures & Options (F and O) Segment?
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Trade in CM for investment and in F and O for hedging or speculation—but remember, risk is higher in F and O!
Updated On: Jul 7, 2025
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Solution and Explanation
Trading in the Capital Market (CM) Segment and Futures & Options (F and O) Segment differ significantly in terms of instruments, settlement, and risk exposure. Below is a detailed comparison:
Conclusion: While the CM segment suits investors seeking ownership and long-term gains, the F and O segment is ideal for traders aiming for short-term profits, speculation, or hedging against price movements.
| CM Segment (Cash Market) | F&O Segment (Derivatives Market) |
|---|---|
| Nature of Instrument: Involves buying and selling of actual shares. | Nature of Instrument: Involves trading in contracts derived from underlying assets like stocks or indices. |
| Ownership Transfer: Physical delivery of shares takes place. | Ownership Transfer: No actual delivery; contracts are settled in cash or rolled over. |
| Settlement Cycle: T+1 or T+2 settlement cycle. | Settlement Cycle: Daily mark-to-market settlements and final settlement on expiry date. |
| Leverage: No leverage; full amount is paid upfront. | Leverage: Requires only margin money; higher leverage. |
| Risk: Lower risk due to actual asset ownership. | Risk: Higher due to leverage and price volatility. |
| Trading Horizon: Preferred for long-term investment. | Trading Horizon: Mostly for short-term speculative purposes or hedging. |
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