Futures and Options in Stock markets: Funds may be invested in options and futures on securities, indices and interest rates in order to manage the Investor portfolio more effectively. Also funds may be invested in futures and options or forward foreign exchange contracts to hedge market and currency risks. Transactions in futures carry a high degree of risk. The amount of initial margin is small relative to the value of futures contracts, therefore such transactions are supported by "leverage". A relatively small market movement will have a proportionately larger impact, which may work for or against the investor. Placing of certain orders with the intent to limit losses to certain amounts, may not be effective because market conditions may make it impossible to execute such orders. Transactions in options also carry a high degree of risk. Selling ("writing" or "granting") of option generally entails a higher risk than purchasing of option. Although the premium received by the seller is fixed, the seller may suffer losses that far exceed this amount. Seller will also be exposed to the risk of Purchaser who exercises the option, and Seller will be obliged either to settle the option in cash or to acquire or deliver the underlying investment. If the option is "covered" by seller, who holds a corresponding position in the underlying investment or futures or other options, the risk can be reduced.