Introduction to Financial Derivatives - Basic Understanding

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 In today's post we will introduce you the Financial Derivatives in the Indian Financial Market.

So, What exactly is a Financial Derivative?? 

Derivatives are Financial Instruments that derive their value from other existing Asset Classes.


The term Derivatives indicates the instruments derives its values entirely from the asset it represents.

Given Below are the type of Asset Classes : 
- Equity, 
- Bullion, 
- Currency, 
- Commodity, 
- Realty, 
- Rate of Interest and 
- Livestock.

When you invest in Derivatives, 
you actually place a Bet on
whether the value of the asset represented will increase or decrease 
by a certain percentage and
within a set period of time.

There are 3 types of participants in a Derivatives Market:

1. Speculators - Speculators are the High Risk Takers. they take risk to earn profits by
Buy in low and Sell in High or
First Sell in High and later Buy in Low.

2. Hedgers - Hedgers are cautious players who protect themselves from risk by closely watching price movements and sell as soon as they reached at their optimum price. Thus getting an assured price for the stock.

3. Arbitrageurs - The person who attempts to earn the profits from inefficiencies in price by making transactions that offset each other is an Arbitrageur. He typically makes his profit by Buy in low in one market and Sell in High in another.




  

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