What is a derivative?

A derivative is a financial contract between two parties that derives its value from an underlying asset, such as a stock, commodity, or currency. In other words, it's a bet on the future price of an asset.

How can a derivative come to a trader’s rescue?
  • Hedging : Futures, options & other derivative products are used to minimize overall risk either on a portfolio or derivative position.
  • Speculation : Since the derivative is a leveraged product, traders find it very cost-effective to trade. Just because with the lesser amount of capital they can trade & maximize the returns. However, it is sometimes risky also if the market goes against your position.
  • Arbitrage : This is a common but a near to risk free strategy. Traders do arbitrage between Spot to futures & earn a risk free profit.

In India financial Derivatives are more popular. Let us have a look at what those are.


Derivatives on Nifty & Bank Nifty are very popular in India. The majority of derivatives volume on Indian exchanges is contributed by these two products.


Futures & options on stocks are popular too. Mostly the stocks of Nifty 50 are very active and volume contributors.


Major currency pairs like USDINR, and EURINR are active contracts on Indian exchanges. Exporters & importers having foreign exchange exposure can hedge and minimize the currency risk arising out of currency fluctuations.


In India precious metals are very popular on commodities derivative Exchanges. Metals like Gold & silver are highly traded.


Futures & options are the tools which are available to trade.
In india currently Nifty, Nifty bank, Gold , USDINR & derivatives on bluechip stocks are available to trade.
Liquidity in derivatives on Major indices like Nifty, Nifty bank, Bluchip stocks & currency pairs like USDINR & EURINR is good.
Broker shal charge brokerage. Other than this regulatory charges like, STT, stamp duty SEBI TO charges, Exchange TO charges etc are levied.