What are different types of Derivatives?
Although there are many types of derivatives, in Indian stock market currently we have futures and options. What are Futures and how they function? Futures are derivative contracts to buy or sell a specified quantity or underlying assets at an agreed price, on or before a specified time. They are standardized forward contracts, which are traded on the Exchanges mainly BSE & NSE. Since they are traded on the Exchange on electronic platform, it provides them transparency, liquidity, anonymity of trades, and also eliminates the counter party risk due to guarantee provided by the Exchange. Derivative market is a leverage market since Investor/Trader has to pay only fraction of total value of the contract as a margin to his broker, who in turn has to pay to the Exchange, for e.g. if Rs. 100 is required to be deployed in cash market for taking a delivery the same stock if available in derivatives market can be bought by paying an average margin of around 25%. Currently in India we have 3 typ
