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What is Derivative Market?

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Posted by : NIFM
13 December, 2016, 2:51 PM
What is Derivative Market?
If you are little interested in financial market then that is for sure you have heard this word, financial derivatives so many times.  The derivative market is a contract between two or more parties based upon the asset or assets. The value of derivative is determined by fluctuations in the underlying asset. Derivatives market are speculative investments or to reduce the risk in financial market.   For trading in derivatives market there are two platforms where you can trade:  1. Over-the-counter (OTC)  2. An exchange.   An Over the Counter derivative is contracts where two parties traded privately, negotiated without going any exchange. In exchange markets the all transactions are completed through the exchange which is regulator. Exchange market acts as an intermediary to all related transactions between buyer and seller; they take initial margin from both sides of the trade to act as a guarantee.   Purpose: The purposes of financial derivatives are to speculate and to hedge investments.    In derivative market most common underlying assets are stocks, bonds, commodities, currencies, interest rates and market indexes.   Types of Derivative Instruments: Derivative contracts can be divided into four categories:  • Forwards • Futures • Options  • Swap   Forward Contracts A forward contract is an agreement between two parties which is non-standardized contract– they agreed to buy or sell an asset at a specified date at a specified price upon today. It is also known as forward commitments.   Future Contracts In the other side a futures contract is also an agreement between two parties – they agreed to buy or sell an asset something on a future date with standardized quantity and quality. The contact trades in a futures exchange and it is daily settlement procedure. In the daily settlement, investor has to pay the losses every day and if they earn exchange will settle the credit amount in their trading account.   Options Contracts There are two types of Options: 1. Calls Option 2. Puts Options   Call options give the right but not the obligation to buy at a certain price and quantity, so the buyer would want the stock to go up. Put options give the right but not the obligation to buy at a certain price and quantity, so the buyer would want the stock to go down. Swaps  Swaps are private agreements between two counter parties to exchange two financial instruments. Swaps can be anything but the two commonly used swaps are interest rate swaps and currency swaps.   Join NIFM-where you will get the depth knowledge of derivative market. NIFM is also provides you so many courses. Those courses may help you to improve your trading skill. There are so many courses in NIFM for you to get job in financial markets.   Call NIFM- 011 45646322, 99103 00590, www.nifm.in

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