5 Advantages of Currency Derivative Trade
Trade in the Indian stock market can be done through various behaviors. While some choose to buy and sell stocks / shares, there are other people who choose to trade through derivatives.
Derivatives are basically financial instruments or contracts based on the value of spot market prices, (also known as the market conditions of the underlying variable such as bonds, stock or currency. The underlying market conditions can be interest rates, market indices, equity prices. , currency exchange rates, securities and market loans. These transactions can be of various types such as futures, options, swaps, floors, lids, collars, structured debt liabilities and deposits, or any combination.
Derivative trade in India usually takes place in separate derivative exchanges / individual / separate segments of existing stock exchanges.
There are two types of derivative instruments traded in NSE;
Futures: This is an agreement between two parties, both to buy or sell certain assets at certain times in the future at a certain price. Future contracts are usually resolved in cash. This is mainly used in commodity markets. Future contracts are always denominated in certain currencies; Where purchases speculation for commodity value and currency where the contract is carried out.
Option: This is a contract where investors have an option – not an obligation to buy or sell the underlying on the date stated in the future at a predetermined price. They may be of two types:
– Call: This gives the right buyer (not an obligation) to buy certain quantities of ‘underlying assets’ at a certain price; Good on or before the pre-decided date.
– put: this gives buyers rights (not obligations) to sell a large number of underlying assets at a certain price; either on or before the predetermined date.
All Option Contracts are completed in cash
There are two derivative contract categories:
1) Derivative over-the-counter (OTC): these types of derivatives do not trade in formal stock or exchange in the future or through centralized partners. They might:
2) Derivatives traded exchanged: This type of derivative is traded through special derivative exchanges or other exchanges.
The foreign currency market, which is the largest trading market in the world, also known as ‘FX’ or ‘Forex’.
This market is based on currency trading. This market trades currency derivatives – financial instruments based on foreign currencies.