A Study on the Derivatives Market in India | Original Article

ABSTRACT:

An important part of every country's economic growth is the derivatives market. The purpose of this research is to learn how the volatility of financial derivatives affects the underlying market (f utures and options). Today, financial derivatives are among the most widely utilised and widely traded instruments in the world. The phenomenal worldwide expansion of this phenomenon has earned it the name the derivatives revolution. In recent years, the derivatives market in India has seen greater development and expansion than in other countries. Derivative. An Indian stock market firm derivative is used as a case study in this article to explore the concepts of futures and options. We hope that at the end of this paper, readers will have a better understanding of how they may maximise their returns when trading in the derivatives market.Today's financial markets would collapse without the use of derivatives, a special kind of financial instrument. Popularity and activity in the derivatives market are high in India. There is no denying the high degree of uncertainty inherent in the price movements of assets traded on the currency, commodity, and stock markets. “Derivatives are instruments that, when used in a financial market, may increase the efficiency of a market by facilitating price discovery, liquidity, and the transfer of risk. Additionally, derivatives are used by investors and corporations as a risk management tool. Due to the unfamiliarity and complexity of derivatives trading, investors are wary and have divergent opinions. You may reduce the exposure you have while trading an underlying asset by using a derivative instrument. Derivatives, in their simplest form, are any financial instrument whose value is derived from some other asset or index. Commodities like gold, cotton, pepper, etc., and financial assets like stocks, currencies, bonds, etc., make up the underlying assets. Derivatives are broken down into two broad categories, commodities derivatives and financial derivatives, according to the kind of assets they are based on. The primary goal of these products is to mitigate financial risks by providing commitments to future prices in the event of unfavourable fluctuations in future prices. They also provide possibilities for financial gain for those willing to take greater risks. In other words, these tools make it possible for risk to be transferred from those who would want to avoid it to those who are ready to embrace it. Therefore, investors may reduce the effect of price changes on profits by locking in asset values.