NISM - Derivative
A derivative is an instrument whose value is determined from the value of one or more basic, which can be commodities, valuable metals, cash, bonds, stocks, stocks indices, etc. Four most common cases of derivative instruments are Forwards, Futures, Options and Swaps.
Four most common cases of derivative instruments are:-
- Able to exchange the risk to the individual who is willing to accept them
- Lower transaction costs
- Provides liquidity
- Incentive to make profi ts with minimal amount of risk capital
A forward contract could be a customized contract between two parties, where settlement takes put on a particular date in future at a cost concurred today.
Futures are exchange-traded contracts to offer or purchase monetary instruments or physical commodities for a future delivery at an concurred cost. There's an agreement to purchase or offer a indicated quantity of budgetary instrument product in a assigned future month at a cost concurred upon by the buyer and vender.
- Highly Liquid
- Higher Leverage
- Low Capital Requirement
- Easy to Trade
- Lower Risk