The Best of Derivative Trading for Indian Traders
Are you aware of online derivative trading in India? Have you ever known about the benefits of derivative trading? If not, let’s have a brief look on what is derivative trading and what are its types. Derivative is nothing but a contract between two or more parties that is purely based on a single or set of financial assets. Traders generally prefer derivatives to monitor the future price movement of the underlying assets in the hope of booking a profit.
We can classify the financial market of India into two categories as cash segment and derivative segment. In the past years, India has witnessed a big turnover in the trading volume of derivatives. You can start buying and selling derivatives with just a DEMAT account and a trading account. If you have any queries on how to open a trading account, get connected with Goodwill – India’s best trading commodity broker. Open your DEMAT account now with Goodwill!
Firstly, we’ll have a brief on what are derivatives and what are the types of derivatives trading followed in India.
What is Derivatives Trading?
As discussed earlier, derivatives are contracts that derive the value based on the underlying asset. The underlying assets mentioned here could be stocks, commodities, currencies, indices, exchange rates, or even interest rates. You can buy and sell financial assets in derivative trading. You will be able to derive profits from derivative trading by predicting the future value of the underlying asset.
Types of Derivatives Trading:
There are four major types of financial derivatives adopted in India, they are listed below. Have a look at it to gain detailed information on it.
An option is a contract provided to the buyer where the buyer has the right to sell the underlying asset within the period as mentioned in the bond. The price will be set by both the parties and it’s called a strike price. In this option, the buyer has the right to choose either to buy or sell the assets, or do nothing.
Future is a financial contract that obligates both the parties to transact an asset within the discussed future date and price mentioned in the contract. As per the contract either the buyer must purchase or the seller must sell the underlying asset at the set price within the expiration date. These contracts detail the quantity of underlying assets and facilitate trading on a future exchange.
Forward is also similar to future but provides an opportunity to both contracting parties to customize the contract as per their requirements. This contract can be used for hedging and speculation because of its non standardized nature. We cannot trade forward contracts on a centralized exchange as it is done through over-the-counter (OTC) instruments.
Swap is a derivative contract where two parties would exchange their cash flows and liabilities over two different financial instruments. In general, one cash flow is fixed while the other is variable and it is based on the benchmark interest rate, index price or floating currency exchange rate.
Benefits of Derivative Trading:
The advantages of derivative tradings are:
- Supporting: Helps you protected against future value vulnerabilities.
- Leverage: Allows higher exchanging presentations
- Better Returns: No matter what the financial situation is, one can bring in cash
Derivative trading is complex but interesting. Seeking expert advice from India’s No.1 trading brokerage would help you in analyzing the assets in derivative trading.
Being an award-winning brokerage firm in India, Goodwill has been awarded MCX – Best Retail Broking House award for the past 3 years (2017-2019), therefore investing your money with Goodwill will be a trustworthy option. Stay connected with Goodwill, visit Facebook Page to get live updates on trading.
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