New Delhi, Business Desk. You must have often read in the news coming in the media that petrol and diesel are going to be expensive because crude oil has become expensive. Otherwise, petrol and diesel are going to be cheaper because crude oil has become cheaper. You must have got an idea from this news that the prices of petrol and diesel depending on the price of crude oil. This happens not only in petrol or diesel, but there are also many financial instruments whose prices change on the basis of some other commodity or asset. These instruments are called derivatives and the market in which they are traded is called the derivatives market. Let us give you some important information about this market today.
What are derivatives?
Derivatives are contracts whose price is dependent on a specific asset. These assets can be any stock, commodity, currency, index, etc. Derivative contracts are short-term financial instruments that are valid for a limited period of time. That is, they are canceled after a date which is considered to be the termination of the contract. These contracts are traded in the derivatives market. The country’s well-known company 5Paisa helps in trading derivatives. This company also gives accurate information related to it.
How many types of derivatives are there?
There are 4 types of derivatives in the derivatives market. These are called forwards, futures, options, and swaps. Forward is an exclusive agreement between two parties. In which the conditions are different depending on the different situations. Because there is no standard of terms and they are different according to different deals. Therefore, they cannot be bought and sold on the exchange. They are sold over the counter. Whereas futures and options are contracts prepared under standards.
Therefore they can be bought or sold in the exchange. The future is a standardized agreement with an obligation to meet the conditions. On the other hand, an option is also a contract but it does not involve any obligation to the buyer. There are two types of options – call options and put options. On the other hand, a swap contract is done between two parties to exchange cash flows based on a pre-determined formula. Simply put, swap allows the conversion of one security into another. This includes interest rates and currency swaps. 5Paisa is providing information on knowing the nuances of derivatives and when and how and where to trade derivatives.
Why are derivatives needed?
Derivatives contracts provide protection against the risk of high volatility in an asset in the future. For example, if a trader thinks that there may be a sharp rise in a commodity in the coming time and he needs this particular commodity at the same time when prices are likely to rise, he should ensure the supply of the contract in advance. object by doing He can also do it for himself at favorable prices. This allows the trader to protect himself from a sharp rise in prices in the future.
If you also want to invest in the market then 5Paisa is a platform where investing is not only easy but also profitable. DJ2100 – Create your Demat account at 5paisa.com with a coupon code and avail offers.
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