Futures and Options (F&O) are called leverage because an investor can make a large amount of money with proportionally little investment; however, it is one of the riskiest trading practices as investors can lose big, said Santosh Nair, Executive Editor, Moneycontrol.com, during a lecture series at Asian College of Journalism in Chennai.

Nair explained the concepts related to and processes of how trading happens in F&O. All kinds of transactions are processed at the clearing house, which acts as an intermediary between the buyers and seller to ensure that both parties fulfill their contractual obligations, said Nair. He discussed the concept of call options and put options practiced in F&O trading.

Nair also spoke about the global financial crisis of 2008. In this context, he explained in detail the complex concepts of securitization, Credit Default Swaps, and mortgage-backed security and how these instruments were used by banks, which led to one of the worst financial crises in history.

Nair answered a number of questions on stock market concepts. These included questions on hedge strategies, market capitalization, derivatives, earning per share, equity dilution, weightage on stock index, bonds, junk bonds, and the impact of the federal benchmark rate on India’s stock market, among others.