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What is 'Derivatives'
Definition: A derivative is a contract between two parties which derives its value/price from an underlying asset. The most common types of derivatives are futures, options, forwards and swaps.
Description: It is a financial instrument which derives its value/price from the underlying assets. Originally, underlying corpus is first created which can consist of one security or a combination of different securities. The value of the underlying asset is bound to change as the value of the underlying assets keep changing continuously.
Generally stocks, bonds, currency, commodities and interest rates form the underlying asset.
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The misunderstood role of derivatives in retail trading: A balanced perspectiveThe role of derivatives in retail trading is misunderstood. The author focuses on derivatives' importance in hedging and risk management. He critiques the view that derivatives are solely for speculation and stressed the need for balanced regulations. Misunderstanding hedging strategies could lead to policies that may harm market stability.
Options vs futures: Understanding the key differences for retail tradersOptions are financial instruments that grant their owner the choice, but not the requirement, to either purchase or sell a specific asset at a predetermined price by a certain date. There are two primary types of options: call options, enabling the owner to buy the asset, and put options, permitting the owner to sell the asset. This adaptability empowers traders to capitalize on market fluctuations without being obligated to execute a trade unless it proves advantageous.
India's interest rate derivatives to get boost as top insurer LIC enters marketInvestment in a type of bond derivative called forward rate agreements could likely rise in India as the interest rate cycle turns and the country's largest insurer enters the market, traders said.
View: Sebi's measures to curtail speculative trading in the index derivatives segmentLate last month, Sebi proposed measures to address the rise in speculative trading in index derivatives, driven by a surge in individual investor activity. Concerns have been raised about the exponential increase in futures and options (F&O) trading volumes, which are now 400 times those in the cash market in India, compared to 5-15 times in most other markets.
When temptation turns into conIndia's consumer economy is experiencing rapid growth thanks to the instant gratification trend. This is evident in various sectors such as instant loans, quick commerce, fast money through derivatives trading, and online games with immediate rewards. Even home delivery services, including liquor in some states, contribute to this fast-paced business model.
Weapons of mass destruction! Sebi has to deal with 3 side-effects before defusing F&O time bombRetail traders suffered substantial losses of Rs 52,000 crore in the derivatives market in FY24, leading SEBI to propose a seven-step plan to mitigate risks. Experts worry these regulations could increase hedging costs and push traders to other markets. The industry seeks a balanced approach to regulation without stifling market freedom.
Putting some sting into the F&O taleSebi's proposals aim to reduce retail speculation in derivatives without affecting price discovery. Measures include tighter scrutiny of business models and preventing speculation from moving to other market segments like smallcaps or shadow trading platforms. The regulatory changes will require the trading ecosystem to adapt and recover from revenue setbacks. There is a focus on preventing speculative intent from resurfacing through effective policing and offering alternative higher-risk investment options for retail investors.
Derivative death trap? 78 lakh F&O traders lost Rs 52,000 crore in FY24, shows Sebi dataTwo decades ago, Warren Buffett had warned that derivatives are nothing but time bombs, both for the parties that deal in them and the economic system. And now Sebi data has proved the 'God of stocks' right once again.
Households losing Rs 60,000 cr a year on derivative bets: BuchA Sebi study had earlier pointed to 90 per cent of the trades resulting in losses. The capital markets regulator also came up with a consultation paper on Tuesday proposing ways to limit the activity.
240% jump in unique investors on NSE in 5 years from FY2019 to FY2024: Eco SurveyRetail investors in NSE: According to Economic Survey 2023-24, "The number of unique tax IDs registered on the NSE rose from 2.7 crore in FY19 to 9.2 crore in FY24. Most of the new retail investors are likely young and may have a higher risk appetite. It is also reflected in the interest that retail investors have shown in derivatives trading, especially expiration-day trading.
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