{"id":247224,"date":"2022-05-20T08:19:09","date_gmt":"2022-05-20T08:19:09","guid":{"rendered":"https:\/\/imarticus.org\/?p=247224"},"modified":"2022-09-20T11:49:05","modified_gmt":"2022-09-20T11:49:05","slug":"from-bse-to-nse-understanding-the-concept-of-derivates-market-in-2022","status":"publish","type":"post","link":"https:\/\/imarticus.org\/blog\/from-bse-to-nse-understanding-the-concept-of-derivates-market-in-2022\/","title":{"rendered":"From BSE to NSE: Understanding the concept of Derivates Market in 2022"},"content":{"rendered":"

From BSE to NSE: Understanding the concept of Derivates Market in 2022<\/strong><\/h1>\n

Introduction<\/b><\/p>\n

Do you have a genuine knack for the financial market? Is your interest in the concepts of derivatives growing day by day? If your answer is yes to both these questions then a <\/span>career in investment banking<\/b><\/a> might be just the right fit for you. Before you jump into your search for the best investment banking courses on the internet, let us briefly revisit the basic concepts of the derivatives market, its benefits, and uses, and how you as an aspiring investment banker can play an active role in this money market.<\/span><\/p>\n

Derivatives Market Explained<\/b><\/h2>\n

A derivative is a type of financial contract between two individuals\/parties or more. The underlying basis of this contract is a mutually agreed-upon financial or commodity asset (for example security) or a group of assets (referred to as an index). The most commonly used financial instruments used to forge a derivative contract are commodities, currencies, bonds, market indexes, interest rates, and stocks.<\/span><\/p>\n

In a derivatives market, you are likely to come across these three kinds of participants:<\/span><\/p>\n

    \n
  1. \n

    \u00a0 \u00a0 Hedgers<\/b><\/h3>\n<\/li>\n<\/ol>\n

    Hedgers are traders who engage in self-protectionism from the risk that arises out of price movements. They will cover or hedge their position by getting into a trade policy of the opposite nature and attempt to pass on the risk to those who are comfortable bearing it. In this way, they protect themselves from the risk or uncertainty associated with a particular price.<\/span><\/p>\n

      \n
    1. \n

      \u00a0 \u00a0 Speculators<\/b><\/h3>\n<\/li>\n<\/ol>\n

      Speculators have an appetite for high risk and can predict the future price movement to make gains quickly and largely. Speculators try to garner the maximum output out of price volatility. They absorb excess risk and provide liquidity in the market where other investors would not like to get involved.<\/span><\/p>\n

        \n
      1. \n

        \u00a0 \u00a0 Arbitrageurs<\/b><\/h3>\n<\/li>\n<\/ol>\n

        Arbitrage involves low-risk trading and the arbitrageurs buy securities in one market and parallel sell in the other. This happens when the same kind of securities are being sold in two different types of markets simultaneously at different prices.<\/span><\/p>\n

        Types of Derivatives<\/b><\/h2>\n

        To understand the derivatives market better, you also need to have an idea of the four sub-types:<\/span><\/p>\n

          \n
        1. \n

          \u00a0 \u00a0 Forward Contracts<\/b><\/h3>\n<\/li>\n<\/ol>\n

          Customized agreement between two parties wherein they mutually agree to trade on a particular asset or commodity at an agreed-upon price and a fixed date in the future. They are under a contract basis to bear the respective loss or profit should things go\/not go in their favor. These contracts are traded privately over the counter.<\/span><\/p>\n

            \n
          1. \n

            \u00a0 \u00a0 Future Contracts<\/b><\/h3>\n<\/li>\n<\/ol>\n

            The standardized alternative of the forward contract type. Two parties agree to trade on a particular contract at a specified date and time and a fixed price. Unlike forwarding contracts, they can be traded on the exchange.<\/span><\/p>\n

            \u00a0<\/span><\/p>\n

              \n
            1. \n

              \u00a0 \u00a0 Options Contact<\/b><\/h3>\n<\/li>\n<\/ol>\n

              A mutual agreement between the seller and the buyer wherein the buyer is given the right to either buy or sell a particular commodity or asset at a later date in the future at a fixed price. However, the buyer is not obliged to do so.\u00a0\u00a0<\/span><\/p>\n

                \n
              1. \n

                \u00a0 \u00a0 Swap<\/b><\/h3>\n<\/li>\n<\/ol>\n

                Under this type of derivative contract, two individuals or parties exchange the liabilities or cash flows from two financial instruments separate from each other. The swaps are based on a notional principal amount such as a bond or loan.<\/span><\/p>\n

                Benefits of Derivatives<\/b><\/h2>\n

                If you are wondering why the derivatives market is so lucrative to traders and investors, here are some of the benefits of its uses:<\/span><\/p>\n

                 <\/p>\n