Introduction

Hi friends, hope all are doing well and in good health.

Hope you all enjoyed my previous blogs on stock market series.

Today, we will complete the series with a blog on derivatives trading in India with the help of infographics.

Derivatives

Derivatives are financial contracts that derive their value from an underlying asset.

These could be stocks, indices, commodities, currencies, exchange rates, or the rate of interest.

These financial instruments help you make profits by betting on the future value of the underlying asset. 

So, their value is derived from that of the underlying asset. Therefore, they are called ‘Derivatives’.

Source: https://businesspost.ng/economy/sec-shifts-focus-to-derivatives-trading-for-market-liquidity/

Participants in derivatives trading

There are four major participants in the derivatives market, namely – hedgers, speculators, arbitrageurs, and margin traders.

Source: https://rmoneyindia.com/research-blog-traders/volatility-derivative-markets-poll-day/

Hedging

Hedging in finance refers to protecting investments.

A hedge is an investment status, which aims at decreasing the possible losses suffered by an associated investment. 

Hedging is used by those investors investing in market-linked instruments.

Source: https://www.wallstreetmojo.com/hedge/

Features of Derivatives

Source: https://www.slideshare.net/sweta12/derivatives-basic-concept-8652582

Source: https://www.armstrongeconomics.com/uncategorized/derivatives-market-280-trillion-is-it-really-a-time-bomb/

Derivative Instruments

There are mainly four types of derivative instruments such as futures, forwards, options & swaps. 

However, Swaps are complex instruments that are not traded in the Indian stock market.

Source: https://www.tradingcampus.in/derivatives/

Futures

A Future is a derivative financial contract to buy or sell an underlying stock or other asset at a predetermined price on a specific date.

A futures contract allows an investor to speculate on the direction of a security, commodity, or financial instrument, either long or short, using leverage.

Source: https://tradersunion.com/interesting-articles/futures-contract-what-is-it-and-how-to-trade-it/

Source: https://efinancemanagement.com/derivatives/futures-contracts

Source: https://efinancemanagement.com/derivatives/types-of-futures-contracts

How to trade in future contract

Source: https://www.fool.com/investing/how-to-invest/stocks/futures-trading/

Forwards

A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.

Source: https://wealthhub.ca/forward-contract/

Source: https://slideplayer.com/slide/4185279/

Source: https://www.bbalectures.com/futures-vs-forward-contracts/

Source: https://www.wallstreetmojo.com/forward-contracts/

Options

An option is a contract giving the buyer the right—but not the obligation—to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specific price on or before a certain date. 

People use options for income, to speculate, and to hedge risk.

Source: https://www.investopedia.com/options-basics-tutorial-4583012

Source: https://www.sketchbubble.com/en/presentation-options-trading.html

Source: https://slideplayer.com/slide/2576452/

Source: https://blog.achievable.me/securities-industry-essentials-sie-exam/options-basics/

Source: https://www.wallstreetmojo.com/what-are-options/

Conclusion

The complete stock market series including today’s blog is an overview of how different types of trading functions in India.

If you really wish to trade in it please have a complete knowledge on the concepts in detail, patterns, charts, and on the outlook of external and internal factors affecting the market.

There are various books, blogs, and crash courses on all these topics which can educate on how to start with trading. 

If you are going to invest, consult with your investment manager about the portfolio of investments based on duration, reliability, liquidity, risk factor and returns.

So always make sure you make a wise decision before you invest into financial markets as it is a highly volatile market and has a high risk factor.

Thank you guys for y