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subject: Derivatives Trading India - Invest In The Growing Derivative Market [print this page]

Derivatives are products, whose values are gained from one or more basic variables, called bases that include- underlying assets, index or reference rate.

The underlying assets largely include the following:

Forex

Equity

Commodity or other assets.

To understand derivatives Trading India better, here is an example-

Rice farmers may wish to trade their crop at a future date, to eliminate the risk of change in price by that particular date.

In this case, the price of the derivative is driven by the spot price of rice which is underlying.

It is in recent years, that financial derivatives have grown terrifically, Experts have mentioned the following reasons- the variety of instruments that are available, their complexities and turnover.

If dealing equity derivatives, the world over futures and options have gained more popularity, in comparison to that of any other individual stock.

High correlation between the popular indexes, that have different indexes and ease of use, has made not only big institutional investors to participate and invest in derivatives, but also has encouraged small investors.

These are the factors behind the growth of Derivatives Trading India .

Increase in integration of national financial markets with that of international markets.

Enhancement in existing communication facilities and sharp decline in their cost.

Risk management tools are more sophisticated thus help agents in getting proper risk management strategies.

Innovation in derivative markets, which has served to combine risks and returns.

These are the options one has when investing in Derivatives.

Derivatives Trading India products include the following:

Forward: It is a contract between two people where settlements take place on a specific date in future at todays pr-arranged price.

Futures: It is an agreement between two parties to buy and sell an asset in the future at a certain time and sure price.

Options: It is afinancial instrumentthat gives its owner the right, but not the obligation, to engage in some specific transaction on an asset.Options are of two types, choice to buy something is called acall; an option to sell is called aput.

Swaps: They are the private agreements between two parties to exchange cash flows in the future, which are dependent on the pre- arranged formula.

Among these, Futures and options are the most common and beneficial derivatives used by many investors. For those investors, who are interested in good returns from derivatives, should get help from an known investing firm.

by: Sushil Finance

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