Advantages of Derivative Trading in India for a Trader

advantages of derivative trading

For an investor, derivative trading provides diversified channels to protect themselves from the uncertainties of the market. Derivatives are nothing but financial contracts. These financial contracts derive their value from underlying assets such as commodities, currencies, market indexes, stocks, etc. In simpler words, derivatives are a type of secondary security and their value is dependent on the primary security. Investors can earn profits in derivative trading by speculating on the price movement of the assets.

Some commonly used derivatives are futures contracts, forward contracts, options, swaps, and warrants. There are two modes for derivative trading in India. One is OTC i.e. Over the Counter and the second is ETD i.e. Exchange Traded. OTC are contracts that are traded directly between two parties. In an OTC trade no exchange or intermediaries are involved. In ETD, there are standardized contracts such as futures and options. These are then traded or transacted on the exchange. ETD requires an initial deposit or a margin, which is then settled by the clearing house. In India, futures and options trading is given much impetus under the gamut of derivative trading.

Derivative trading has its own share of advantages for investors. Here we list a few important ones.

Advantages of derivative trading

1. Hedging & Managing Risks

Investors would want to focus on capital appreciation. However, capital protection is also important. Investors can do capital protection by hedging. Hedging is where an investor can attempt to alleviate the risks of the price movements. This can be done by taking an offsetting position.

2. Low Transaction Cost

Derivatives primarily act as a risk management tool. Hence they help in reducing the transaction cost of trading in the share market. The cost of trading in the derivative market is low.

3. Determine Asset Price

Investors use derivatives to determine the price of the underlying asset. As there are multiple assets, this can help gauge their price movements. For example, spot prices in future trading can serve as an approximation to gauge the price of a commodity.

4. Access to all kinds of assets

With the use of swaps, one can obtain a favourable rate of interest as compared to direct borrowing in derivative trading.

5. Makes Markets More Efficient

Arbitrage involved in derivative trading helps bring out price corrections. These can furthermore, help in reflecting the true economic value of an asset. This in turn makes markets price efficient and achieve equilibrium in the market.

Derivative trading forms the backbone of a financial market. To help you with a seamless trading experience, Indiabulls Securities Limited has designed an online trading app, Indiabulls Shubh. With Indiabulls Shubh you can conduct trading in F&O, Equity and Currency segments in the share market. From the many Indian share market apps , Indiabulls Shubh offers many economical subscription plans for trading. Listed below are all the details you need for the subscription plans with Indiabulls Shubh.

  • Indiabulls Shubh subscription offers a zero brokerage plan for intraday and delivery for Equity, F&O and currency trading.
  • You can also get access to unlimited trades.
  • The subscription plans start from Rs 1,000 per month.
  • For margin trading, you get a zero interest margin funding. The margin funding plans range from Rs. 1 Lakh to Rs. 15 Lakh
  • You get a free trial of the subscription plans for 30 days.
  • You get intraday exposure of 2X in F7O, 5X in Equity Cash and 4X in margin trading.
  • You can use our phone trading facility to get assistance to place your orders.
  • With a subscription plan, get daily market updates, in-depth, researched recommendations for trading, real-time price quotes, advances market charts and many more services.
  • One time nominal account fee of Rs. 450 only.
  • You can upgrade or downgrade the subscription plans anytime you feel the need for it.

With Indiabulls Shubh’s subscription plans, you can efficiently do your trading in the stock market. This user-friendly app helps you to trade in the share market anytime, anywhere. Try our free 30 day trial and start trading today!

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