Derivative Trading Market

Derivatives

Derivatives Trading is a few steps ahead of Equity trading & carries a slightly higher risk-reward element. At Raghunandan Money, we don’t let you take a plunge into Derivatives but we make you learn the stock market first, master it & then only graduate to the next level that is Derivatives, that too if & only if your risk profile is appropriate to it and you have a knack for the market. In our research desk, we have expert research analysts who have over the years specialized into Derivatives Market and who know how to dig out even the most hidden opportunities to you.

What are Derivatives?

In literal sense, the word Derivative means “a product which has been derived from something else”. Derivative is by-product of some main product, which is also called as underlying product. In financial market, Derivatives are a kind of financial instrument which does not have their own value but the value is derived from the underlying stocks/ shares. So it is like, when you are buying Reliance Share today, you are buying it at today’s price but if you feel that in future this price would be “X”, you may buy Reliance Derivative contract for that future value.

May be you are not used to with the term ‘derivatives’ but if you hear ‘Futures and Options’ or ‘F&O’ or ‘Call and Put’ , you understand the context better. Futures & Options are the 2 types of Derivatives which are traded on Indian stock exchanges at the moment. Though there are other derivative types like Swaps, Forwards etc but they are not traded on exchange platform. Futures are derivatives contracts or an agreement between two parties to either buy or sell a fixed quantity of assets at a particular time in the future for a pre- fixed price. An option is also a similar derivative contract, except the parties are not obligated to fulfill the terms of the agreement. The buyer of the contract only has a right whereas the seller has the obligation.

What are the basic features of Derivatives?

Derivatives contracts are standardized in terms of Quality, Quantity, Time & Value.

Value – The minimum value of Derivatives contract is fixed at 2 lacs currently. So no derivatives contract which has a value of less than 2 lacs will be permitted for trading. This is defined by SEBI.

Quality – Only Index Basket Scrips & the selected scrips which are permitted by the exchange can be traded in F&O. Not all stocks are trade able in futures & options market, so this puts a check on the quality of the stock being traded.

Quantity – When you buy or sell shares you can do any quantity as you wish but if you buy or sell the derivative of the same stock, you can do it in a prefixed quantity or multiple of that . This prefixed quantity is known as Lot or Lot Size.

Time – Unlike stocks, Derivatives contract has certain validity period. Any contract for that month expires on the last Thursday of that month. At any point of time, the dervaives contracts of three consecutive calendar months are available for trading.

What is Derivatives Trading?

The way you buy or sell shares in stock trading, in case of Derivatives Trading, you buy or sell the derivatives contracts of the stocks or index. Just to make it simpler, trading in Derivatives is identical to Intraday Share Trading. In Intraday trading, you buy & sell the shares the same day and you get the difference of prices as the profit or loss. Derivative trading is an extended version of the same, here the time is much larger (upto the expiry day, last Thursday of the month) but you buy & sell the derivative contracts and you get the difference of prices as the profit or loss. So when you trade in derivatives you have the choice of Futures or Options first & then to select from the contacts of three month, with various contracts available at various prices. So this way, Derivatives trading gives you a much larger gamut of products available for trading and hence the opportunities become wider.

What are the advantages of Derivatives Trading?

The real purpose of derivatives trading is to allow traders or institutions to maximise returns and simultaneously limit their risk exposure. However, common investors have developed speculative interest with derivatives & have started reaping benefits from Derivatives trading. For common investors it has primarily three benefits to offer:

1.Margin Benefits: When you are buying a stock today, you are supposed to pay the entire value of the stock whereas if you are buying the derivative contact of the particular stock, you are required to just pay the margin which becomes less than even one tenth of the money that you would have paid for buying it as stock. So it’s a low investment, high volume benefit for you.

2.Risk Hedging: Hedging has traditionally been defined as a strategy for reducing the risk in holding a market position. So if you have some positions in stock market which you want to safeguard, you may simply take an opposite position (or apply some trading strategy) to negate the adverse effect of the market to a larger extent.

3.Arbitrage: Buying from one market & selling to the other market in arbitrage. When there is significant price gap between these 2 markets, you make profits by doing so. Raghunandan Money has an expertise on hitting the arbitrage opportunities & converting them into profit makers for you.

How can you start trading in Derivatives?

In India, Derivatives Trading has become very popular during the past two decades. Trading in derivatives is settled in cash which means no transfer of shares or stocks virtually takes place. Hence to trade in Derivatives all you need to have is a Trading Account. If you wish to start derivatives trading, all you need is to just give us a call or drop us a message. Our executives will get in touch with you to complete the formalities required for you to open a trading account. You will require to give some KYC documents like PAN Card, Identity Proof, Address Proof, Bank Proof, Financial Status Proof & Photographs. You will have to fill & sign up the Account Opening Form and that’s it. You will receive a welcome call, welcome mail & welcome letter from Raghunandan Money informing the details of your demat & trading account and instructions on how to use it. What’s more; our executives will be there to give you a product demonstration and also will help you just in case if you wish to buy or sell on phone. Derivative is complex but Raghunandan Money makes it simple for you.