Derivative is a product whose value is derived from the value of one or more basic
variables, called bases (underlying asset, index, or reference rate), in a contractual
manner. The underlying asset can be equity, forex, commodity or any other asset.
The price of this derivative is driven by the spot price of the "underlying".
>They help in transferring risks from risk averse people
to risk oriented people
>They help in the discovery of future as well as current
>They catalyze entrepreneurial activity
>They increase the volume traded in markets because of
participation of risk averse people in greater numbers
>They increase savings and investment in the long run
>Hedgers use futures or options markets to reduce or eliminate
the risk associated with price of an asset.
>Speculators use futures and options contracts to get
extra leverage in betting on future movements in the price of an asset. They can
increase both the potential gains and potential losses by usage of derivatives in
a speculative venture.
>Arbitrageurs are in business to take advantage of a discrepancy
between prices in two different markets. If, for example, they see the futures price
of an asset getting out of line with the cash price, they will take offsetting positions
in the two markets to lock in a profit.
A forward contract is a customized contract between two entities, where settlement
takes place on a specific date in the future at today’s pre-agreed price.
A futures contract is an agreement between two parties to buy or sell an asset at
a certain time in the future at a certain price. Futures contracts are special types
of forward contracts in the sense that the former are standardized exchange-traded
Options are of two types - calls and puts. Calls give the buyer the right but not
the obligation to buy a given quantity of the underlying asset, at a given price
on or before a given future date. Puts give the buyer the right, but not the obligation
to sell a given quantity of the underlying asset at a given price on or before a
Options generally have lives of upto one year, the majority of options traded on
options exchanges having a maximum maturity of nine months. Longer-dated options
are called warrants and are generally traded over-the-counter.
The acronym LEAPS means Long-Term Equity Anticipation Securities. These are options
having a maturity of upto three years.
Basket options are options on portfolios of underlying assets. The underlying asset
is usually a moving average or a basket of assets. Equity index options are a form
of basket options.
This section will give you meaningful information about the most active contracts,
calls and puts, volume data, latest quotes, historical data, FII statistics, etc.
This section is particularly designed to help F&O traders and to keep them updated
about the latest event in derivatives market.
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