A Definitive Guide on Derivatives Market.
                     A Definitive Guide on Derivatives Market
What are Derivatives?
• A derivative is a financial contract wherein the 
investment instrument’s value is derived from 
an underlying asset or security. An asset or a 
group of assets are chosen as a benchmark 
value, from which the derivative’s value is 
derived.
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Types of Derivatives
• There are four major types of financial 
derivatives, and you can read all about them 
below.
– Options
– Futures
– Forwards
– Swaps
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Participants Of Derivatives Market
• Considering the high number of advantages 
available with derivatives trading, as mentioned 
above, there are several different participants 
who enter the derivatives market with their own 
personal agenda.
– Hedgers
– Speculators
– Margin Traders
– Arbitrageurs
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How To Trade In The Derivatives Market?
• The first thing you are required to do when you 
start trading in derivatives and its types is that 
you need to pay a marginal amount, which 
cannot be withdrawn by you until the contract is 
executed and the trade has been settled. 
• If, while trading, your deposit falls below the 
minimal acceptable amount, you are required to 
replenish it. 
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Online trading
• An online trading account also needs to be 
created before you can begin trading in different 
types of derivatives. 
• However, if you are using the services of a 
broker for trading in this market, you can place 
your orders over the phone or even online.
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Financial requirements
• Before you invest into a particular derivative, 
make sure to thoroughly understand everything 
about the underlying asset it is based on. 
• Keep your budget in mind and ensure that it is 
adequate for meeting the financial requirements 
of the margin for trading, cash in hand, and 
prices of the contract and the underlying asset 
as well.
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ADVANTAGES OF DERIVATIVES
Secure Your Investment
• A derivative contract is the best way to protect 
yourself against an investment that you could be 
observing turning sour. 
• When you trade in derivatives in the stock 
market, you are essentially placing money on 
your certainty that a certain stock will either do 
well or sink
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Protected From Market Volatility
• Investing in derivatives enables you to remain 
protected from the volatility of the market. 
• For instance, you can buy stocks in a certain 
market and then enter a derivatives contract 
through which you safeguard your investment, 
even in case you meet with a loss in the market.
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Profit On Sinking Stocks
• As an investor, it is likely that you have invested 
in stocks that you are confident will perform 
well. 
• However, if they aren’t and you are able to 
accurately gauge this before the rest of the 
market, you could be able to turn a profit by 
entering a derivatives contract.
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