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Respected Sir,
I want to know that what is Deriatives? How it works?
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Answer Posted / s balasubramanian
Derivatives are used in the Stock exchange, Commodity market
etc. It derives from another on the expectation of either
rise or fall in its values. In Stock market, both options
and futures are derivative instruments. In futures, the
stock exchanges fix the market lot and for particular
market lot, the investor can buy futures for a contract
period of 1-month. In case the price of particular stock
goes up, either the investor can sell for a higher price or
take delivery based on the booked price on the expiry date
i.e., last Thursday of any month. The investor need not
pay entire amount as in Cash segment in Futures. He needs
to pay the margin money of 14 to 18% of the stock value as
prescribed for a lot fixed and at the time of taking
delivery, he needs to pay the full amount. At the time of
taking delivery, the amount would be in lakhs due to heavy
lot. In case the price goes lower for any particular
stock, the investor needs to maintain the margin amount
accordingly and he bears the loss also. He can carry
foward the future by paying more margin money to the next
cycle also. In futures, either he can sell it or necessary
to take delivery on the expiry period.
In option, one can buy or sell either call option or put
uption, in bullish or bearish market. He cannot extend the
option beyond a month and either he can sell or exercise
the option for buying the shares at the strike price.
One has to experiment the Futures and Option trading and do
it cautiosly. Both gains and losses are unlimited.
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