ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Trends of Derivative Trading in India

Updated on October 9, 2012

Trading of Derivatives

When derivative trading on the Bombay Stock Exchange crossed the 10 billion Indian rupee mark this November, it called for celebrations. Many would want to ride the wave and contribute to the surge in derivative trading, but experts are calling for caution. As attractive as derivatives may seem, it is important to understand that these should not be used as a financial product. These are meant for leveraging, hedging and speculating. Even if you have the funds to engage in it, you still have to be cautious.

Says Shruti Jain, senior V P, Arihant Securities Ltd: "Problem is when people go beyond their means. You pay a percentage of the total amount as margin, but losses can sometimes go beyond your capacity." A trader might end up eroding all his capital if he holds on to positions for longer than he can afford.

While mutual fund managers and traders of physical commodities can use derivatives to hedge their commodities, for a retail investor sometimes derivatives cannot be that effective. Small and medium entrepreneurs who deal with gold and silver jewellery can use MCX's gold and silver mini contracts. Also for entrepreneurs who dabble in copper, aluminium, lead and steel, MCX's mini contracts are a boon.

These contracts were launched to specifically cater to the price risk management needs of these small and medium businesses. They usually cannot afford a standard gold contract of lkg. They need these contracts to manage changes in raw material costs, which can have pronounced effects on their margins and profitability. According to information provided by MCX-SX, SMEs have low unit consumption, MCX's mini contracts suit the size of their physical operations and eliminate over-hedging. And, in case of bullion, mini contracts are being increasingly used for delivery- based transactions, too.

For a retail investor who wants to experience the thrill that comes with it, apart from good insights and research into the particular derivative, discipline is the key. Says Jain: "Have a stop loss figure in mind. It is just to remind yourself of the loss that you can afford to absorb."

Source Investopedia
Source Investopedia

Presentation on Derivatives Introduction

Comments

    0 of 8192 characters used
    Post Comment

    • maxoxam41 profile image

      Deforest 

      6 years ago from USA

      I thought the derivative products were eliminated from the market since they contributed to the Wall Street collapse! Or at least regulated?

      It seemed that also for experts, the derivative products had their grey areas and therefore uncontrollable.

      I guess, I may have been mistaken!

    • cheetah786 profile imageAUTHOR

      cheetah786 

      6 years ago

      Girls thanks for commenting.. yea you are r right media needs to play a big role to influence the people's mind abt derivative trading...

    • the girls profile image

      Theresa Ventu 

      6 years ago from Los Angeles, California

      Your article surprised me that many people in India are trading derivatives in your stock market, even though they don't fully understand the product. Riding the surging wave is a big factor but your media can also play a big role to influence them? Hope your article can reach a lot of speculators to minimize their risks as much as possible.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)