Hedge or Speculate on the price movement of Stocks / Index
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Derivatives provide an amazing investment avenue for investors who intend to make profits by hedging risks. Derivatives were introduced in the year 2000 and has kept on growing in popularity ever since. This is true, as the daily turnover in the derivatives segment on the National Stock Exchange is a lot higher than the turnover recorded in the cash markets on the same exchange rate.Derivatives are financial contracts that derive their value from an underlying asset. These could be indices, stocks, currencies, commodities, rate of interest or the exchange rates. These financial avenues assist you in making profits by speculating on the future value of the underlying asset.So, if you intend invest in derivatives, we at AxisDirect will help you with the best of the research ideas. We provide ideas based on analysis from award winning research house to enable you make investments in derivatives simpler. So, whether you are a new investor or a knowledgeable investor, we endeavor to provide you the best derivative ideas to help you create wealth.
There are numerous benefits of trading in derivatives
Arbitrage:While dealing in the derivatives market, you are basically betting on the future increase or decline in stock prices. As a result, many stock traders use the segment to enhance their profits. This is called arbitrage.
Hedging:Derivatives trading is most commonly used tool for hedging against price volatility. As part of this, you buy in the cash segment and agree to sell in the derivatives market or vice versa. Thus, you are essentially safeguarding yourself from potential losses. Hedging is mainly used by importers and exporters in the currency derivatives segment.
Margin trade:When you trade in the derivatives market, you only pay a margin. This is because the actual value of the contracts is too large, usually in lakhs and crores. However, when you make a profit, the percentage of growth is also exponentially higher. This allows you to generate more wealth.
Longer horizon:You can hold a position up to 3 months when you trade in derivatives.
The Basics of Futures:
Futures are contracts to buy/sell pre-defined quantities of an instrument at a specified price and time. Future contracts come with standardised conditions such as price, quantity and time. The obligation to buy or sell in the future lies with the owner of the contract. Price of a futures contract is determined by supply and demand factors in the secondary market. Index futures were the financial derivative launched in India. Futures contracts expire on last Thursday of the expiry month.
The Basics of Options:
If you invest in options, you have the right to buy or sell the contract at a pre-defined price. The purchaser of an option has to pay a premium whenever he/she purchases a contract. The seller of an options contract is obliged to sell/buy an asset if the buyer exercises his contract.
Trading in derivatives is similar to trading in the cash segment of the stock markets.
As a first step, do a thorough research. This step is more important for the derivatives market. However, remember that investing strategies would differ from that of strategies applied in the stock market investing. For example, if you wish to buy stocks that are likely to rise in the future, you conduct a buy transaction. However, in the derivatives market, this would require you to enter into a sell transaction.
Arrange for the requisite margin amount and constantly maintain your margin amount as per the stock market rules. This means you cannot withdraw this amount from your trading account at any point in time until the trade is settled. Also, remember that the margin amount changes as the price of the underlying stock rises or falls. So, always keep some extra money in your account.
Conduct the transaction through your trading account. For that, you must ensure that your account allows you to trade in derivatives. If not, consult us and get the required services activated. Once you do so, you will be able to place an order online or on a call with us.
Select your stocks and their contracts on the basis of the amount you have in hand, the margin requirements, the price of the underlying shares as per the stock market, as well as the price of the contracts. Yes, you do have to pay a small amount to buy the contract. Ensure all this fits within your budget.
You can wait until the contract is scheduled to expire to settle the trade. In such a case, you can pay the whole outstanding amount, or you can enter into an opposing trade. For example, if you placed a ‘buy trade’ for Infosys futures at Rs 3,000, you can place a ‘sell trade’ future contract to exit the trade before expiry. If this amount is higher than Rs 3,000, you book profits. If not, you will make losses.
Click here to understand how to place an order in option, Options Trading.
There are three key requirements for trading in derivatives:
Your demat account stores your securities in an electronic format. A demat account is unique to every investor and trader.
The trading account is used to conduct trades. The account number is considered as your identity in the markets, thus making the trade unique to you. It is linked to your demat account to ensure that your shares directly go to your demat account.
This pre-requisite is unique to derivatives trading. While many in the cash segment also use margins to conduct trade, this is predominantly used in the derivatives segment.
With relatively lesser capital, more exposure can be achieved.
Used in a wide range of strategies from conservative to aggressive.
Low on Cost
No Demat transactions - Brokerage for delivery positions is much lesser than that on Equity.
Allows you to hedge your positions or take leveraged bets on stocks & indices
Trade in Futures & options on selected stocks & Indices with lesser capital as compared to cash
Allows you the flexibility of taking intraday positions in futures at 50% lesser margin as compared to normal futures.
Futures - Cover Order
Get higher leverage than intraday orders. Allows you to place your stop loss orders against your futures position.
A financial derivative contract that allows you right to buy or sell stock or indices at predetermined price on future date
Options - Margin
Hedge your positions or take a bet on future price of a stock by buying or selling options with our Margin orders
Options ֠Cover Order
Get higher leverage than normal option orders. Allows you to place your stop loss orders against your options position.
Getting started with Investing
Learn How to Trade in Derivatives Market
Derivatives are financial contracts whose price is derived from the underlined asset. This chapter will give a broad overview on Options and Futures.LEARN CHAPTER
Derivatives Market Participants
Chapter Not Taken
Know the market participantӳ hedgers, speculators & arbitrageurs and understand their role in the market.LEARN CHAPTER
Futures Contract Introduction
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The contract is an agreement where the buyer agrees to purchase a predefined amount of shares at a particular price from the seller at a specific time in the future. This chapter will take you through important concepts of Futures Contract.LEARN CHAPTER
Options Contract Introduction
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Options are derivative products which gives a trader an option but not obligation to buy or sell a stock at a particular price and during a particular time period. This chapter will take you through important concepts of Options Contract.LEARN CHAPTER