Possibilities Linked With Investment in Derivatives and Equity

Possibilities Linked With Investment in Derivatives and Equity

Overview

Derivative market and equities markets are two investment avenues any enthusiastic investor needs to look at as they promise attractive returns and high profitability.

Derivatives Market

A derivative contract is a specialized contract between parties for fixing the price of a security which is dependent on one or more than one underlying asset. Thus, its value is derived from the fluctuations of the underlying asset. Some common underlying assets are bonds, stocks, currencies, commodities, market indices and interest rates. Derivatives are characterized by high leverages and have become essential financial instruments for management of risks. Derivate prices act as a sort of insurance and are used to shift risk. In this contract, the investors have the option to sell or buy the underlying asset at a pre arranged price within a certain time frame. The contract has a fixed expiry period which can range from between 3-12 months. Swaps, futures and options are all kinds of derivative investments. Derivative contracts are good for hedging and reducing future risk. By opting for derivatives, investors can take leveraged positions and increase their potential to earn higher returns.

Equity

It is impossible to overlook the huge profits that have been made by investors who have put their money in the equity market in India. Private equity firms and venture capitals are now looking beyond the tech savvy sectors and focusing on new areas where they can enjoy advantages. Equity market is now looking for investment opportunities in construction, real estate, manufacturing, financial services and health care. Those investors looking for maximum profits would do well to understand the behavioral adjustments and functioning of these equities. A proper research of the equity market, some smooth managerial skills and a good dose of patience are required to be successful in the equity investment market.

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