What are derivatives?

In the simplest terms, derivatives are exactly what their names indicate. They are financial contracts that derive their value from the underlying assets. These underlying assets can be equity stocks, commodities, currencies, market indices, and even interest rates. So, based on the kind of underlying asset, we have equity derivatives, commodity derivatives, currency derivatives, and more.

What are the different types of derivative contracts?

Different types of derivative contracts are traded in the Indian financial markets. To decide if derivatives are a good addition to your portfolio, you need to first understand how these different types of derivatives function. Broadly speaking, you can identify four kinds of derivative contracts - namely futures, options, forwards, and swaps. In your everyday trading, however, you will mostly deal with options and futures in the Indian markets.

Derivatives: Types, Uses, Risks

Date : 15/02/2022
Read: 9 mins

Over the past decade, the derivatives market in India has evolved tremendously. The average daily turnover in the equity derivatives segment alone has risen from Rs. 33,305 crores in 2011 to Rs. 1,41,267 crores in 2021. That’s a record growth of over 300%!

The history of the modern Indian derivatives market can be traced back to the dawn of the new millennium. On 9 June 2000, the Bombay Stock Exchange (BSE) launched the first exchange-traded index derivative contract. Three days later, the National Stock Exchange (NSE) joined in, launching its own index futures and commencing derivatives trading on the bourse. Two decades in, NSE has climbed up the ranks to emerge as the world's largest derivatives market by volume.  Despite these impressive numbers, the average Indian trader is often apprehensive about venturing into the derivatives market, primarily because of a lack of awareness about how these contracts function. If you, too, are on the fence about trading in derivatives, this guide can help clear your doubts about whether deriva...

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