What are Equity Derivatives?
Derivatives, as the name suggests, are financial instruments that derive their value from an underlying security or asset. Any security or asset that varies in value from time to time could be used as the underlying asset. The underlying asset could therefore be securities, bullion, commodities, bonds, etc. With variation in value comes risk – the risk that the value of an asset that you wish to buy may rise, when you hoped that it will remain steady or still better fall; or the value of an asset that you wish to sell may fall when you hoped that it will remain steady or at best rise. Derivatives essentially enable the transfer of this risk from one individual who is risk averse to another who welcomes the risk in the hope of making returns. In Equity Derivatives, the underlying instruments are securities/stocks.
