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Trading | December 13
What is Derivative trading list its benefits?

Derivatives are financial instruments which derive their value from the underlying assets. There are a variety of underlying assets in derivatives such as equity shares, commodities, currencies, and interest rates.

Derivative trading is the buying and selling, hedging and speculation of derivatives. These derivatives derive their value on the basis of the price, volatility, and risk of an underlying stock, bond, commodity, interest rate, or currency exchange rate.

If you want to enjoy the benefits associated with derivative trading, you need to formulate and implement effective derivative trading strategies. For this, I suggest that you should seek guidance from a financial expert.

You can indulge in derivative trading in two major types of markets, which include:

  • Exchange Traded Derivatives
  • Over the Counter (OTC) Derivatives

Benefits of Derivative Trading

Trading in derivative instruments has a number of benefits, such as:

Risk Management

Derivative trading enables you to manage risk effectively by allowing you to identify the desired and actual level of risk.

Highly Leveraged

By investing in futures, an investor gets the benefit of trading in the value of stocks higher than the original stocks. This can increase their profits significantly if the stocks move accordingly.

An investor putting money in futures can pay a margin as low as 10% of the value of the contract at the original time of investment.

Liquidity

In the case of derivatives, especially, futures, there are a large number of buyers and sellers usually. This makes derivative trading quick and results in the high liquidity of these financial instruments.

Hedging

Derivative trading reduces the risk of adverse price changes of an asset. You can leverage a future contract to prevent the losses incurred in case of a decrease in the stock price of your shares. Many investors use this technique to stay protected.

If you want to add something about derivative trading and its benefits, please mention in the comments below.

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Important Message The information contained in this file is provided for informational purposes only, and should not be construed as legal advice on any matter. The content and interpretation of the law addressed herein is subject to revision. We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this file to the fullest extent permitted by law. Every effort is made to avoid errors. In spite of that, errors and discrepancies may creep in. It is expressly stated that neither Findoc Investmart Private Limited nor any of the contributors of updates will be responsible for any damage to anybody on the basis of this document. Readers are, therefore, requested to cross check with the original sources e.g. Government publications, Orders, Judgments etc., before taking any action or making any decision. These services are being provided through our group companies Findoc Capital Mart Pvt Ltd and Findoc Finvest Private Limited

Attention Investors
  • 1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
  • 2. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
  • 3. Pay 20% upfront margin of the transaction value to trade in cash market segment.

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