Derivatives are those financial instrument used for hedging purpose for the market. In general term, they are the security and valuable tools for the transaction among the parties. Those traders who invest in cash or not can go for derivatives too for a better success in the business of raising funds. They are obviously derived from other valuable asset and a good substitute of an exchange agreement. It is a time based asset which work for a particular time.
Characteristics of the Derivative Market Trading
Delivery : There is no need of the delivery in the derivative segment and only contracts are there.
Expiry Date : They are based on the time and therefore each having an expiry date which is pre-decided. The contract got expired or automatically square of on a particular date. (The day may vary depend on the segment like future or option).
Lot Size : Business is done in the form of lots and its value may vary according to the company or segment traded.
Listing : All companies listed in the cash are not necessarily included in the derivatives; only few ventures gives this authority.
Trading : Positional Short Selling which is not allowed in the Equity is valid here till the expiry of the contract.
Initial Margin or the Premium : It is the amount a trader must have in the account before the trading. If it is not there one can not trade or can do with the money in the account as the basic margin.
Brokerage Charges : Broking price is different from the cash segment but for Intraday and Positional it is same in the derivatives.
Trading in Indices : A trader can put the money in indices here too like nifty, bank nifty and sensex just like in the cash.
Account : There is no delivery like in the cash segment and thus no need of the DMAT account only trading is sufficient for investing in the derivatives.
Settlement of the money : all settlement happens in the T+1 business days (which means second working day of the trading).
Circuit Breaker : It is also valid in the derivatives just like in the Equity. Both – Lower and Upper circuit are applicable.
From the above described features one can understand the similarities and difference in the core cash segment and the derivatives. So that, the investors can invest in both by knowing the working and the span of profit it contains. Thus get informed about them and start earning brilliant income now.