OFDM (Optical Orthogonal Frequency Division Multiplexing) in the optical domain is a promising technology which provides solutions to problems of today’s optical networks. In the present research an optical OFDM system is designed using different modulation techniques QPSK (quadrature phase shift keying), QAM (quadrature amplitude Modulation). Various signal conditioning parameters, like OSNR (optical signal to noise ratio), BER (bit error rate), chromatic dispersion and electrical SNR (signal to noise ratio) have been reported in present research. These parameters could be used for identifying the fault. On the basis of conclusion drawn for values of these parameters, the system may dynamically adapt and reconfigure itself for better transmission. In present research OPTSIM and MATLAB has been used as Simulation tools.