Looking beyond the spectrum of traditional equity trading in stocks and bonds, derivatives
trading has gained massive popularity across the globe, and more recently in India.
The reason behind this popularity lies in the fact that it is less risky to trade
in derivatives than other trades because one is not actually purchasing the underlying
asset or buying into the company but agreeing to purchase them in the future, in
which the investor gets ample time and opportunity to hedge his position. Secondly,
they can be viewed as a good short-term investment strategy with a much less initial
investment than otherwise required. Thirdly, the variety and flexibility offered
by trading in futures and options are absent elsewhere because in addition to stocks
and bonds, derivatives can also be traded in the money market, foreign exchange
(forex), and credit
It should be kept in mind that indicators affecting a derivative's performance are
varied, and largely depend on the type of derivative. These can range from the stock
market index to the consumer price index to weather conditions and fluctuations
in currency exchange rates. Hence, some skill, research, a trusted financial agent
and a bit of luck is pre-requisite to venture into this segment.