'Derivatives' have no independent value. Its value is derived from some other asset, which is called the “underlying asset” and it is contract between two or more traders.
This underlying asset can be an index, stock, commodities bullion or currency. For example, a derivative of ITC share will derive its value from the share price (current value) of ITC.
One of the biggest advantages of derivatives trading is that you can take a high exposure on a stock or security by paying a small margin.
For example, if the stocks are priced at Rs 10 lakh and you have only Rs 2 lakhs in hand, this product will still help you take a position in the derivatives market.
Thus derivatives market offers a huge leverage, which is a big plus for traders who are comfortable with margin trading. A normal margin product allows you to close the trade at the end of trading day and an E-Margin product allows you to carry forward the position for T+2 days. In derivatives trading, you get the biggest time leverage as you can hold the position for 3 months.
Derivatives Market can be classified into Futures and Options.
A future is a contract to buy or sell specific quantities of an instrument at a specified price and a specified time in the future. In case of an "Option", as the name suggests, there is no obligation to complete the transaction.
HDFC Securities offers a robust platform for trading in derivatives. We deliver accurate information on Futures and Options, contract specifications, and calculators on option pricing and cost of carry.
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How to trade in derivatives