Derivative Trading FAQs

Derivatives are financial instruments whose value is derived from other underlying assets. This means that the derivative by itself doesn't hold any value of its own. There are mainly four types of derivative contracts such as futures, forwards, options & swaps. However, the most popular and preferred derivative instrument is Future & Options.

Derivatives provide numerous advantages to the financial markets but some major ones are:

1. Hedging risk exposure.

2. Underlying asset price determination.

3. Market efficiency.

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

1. Futures
A Future is a contract between parties to buy or sell an asset at a specified date in the future for a pre-settled price. There are two types of futures traded in the stock market- index futures and stock futures.

2. Options
Options provide the buyer of the contract the right, but not the obligation, to purchase or sell the underlying asset at a predetermined price.

3. Forwards
Forward contracts are an agreement between the parties to sell something on a future date. Forwards and Futures are essentially the same however forwards more flexible contracts are because the parties can customize the underlying asset as well as the quantity of the asset and the date of the transaction.

4. Swaps
Swaps are contracts that allow the exchange of cash flows between two parties. The underlying security under swap contracts is the interest rate or currency. The most popular types of swaps are interest rate swaps, commodity swaps, and currency swaps.

Future and Options are traded in NSE

1. Open an online trading account: To start trading in Derivatives, you will require to open a trading account. You can easily open your Trading account with Indiabulls within 15 minutes.

2. Select an Initial Investment amount: You have to make an initial investment to start trading. The initial margin varies for different scrips, in case of Futures or Option writing. To buy Option you need to pay applicable premium.

3. Build on a trading strategy: You need to have a plan to start Derivative trading. You can make a plan based on the understanding of the market, your trading style, risk appetite, capital availability, etc.